PRELIMINARY PROSPECTUS          Subject to completion              June 19, 2001
--------------------------------------------------------------------------------

2,200 SHARES SERIES A
2,200 SHARES SERIES B

[EATON VANCE LOGO]

EATON VANCE SENIOR INCOME TRUST

AUCTION PREFERRED SHARES
--------------------------------------------------------------------------------
Eaton Vance Senior Income Trust (the "Trust") is a  non-diversified,  closed-end
management  investment company. The Trust's investment objective is to provide a
high level of current income,  consistent with the  preservation of capital,  by
investing primarily in senior secured floating rate loans ("Senior Loans"). This
prospectus  offers Series A and Series B Auction  Preferred  Shares of the Trust
(the "Preferred Shares").

The Trust's  investment  adviser is Eaton Vance Management ("Eaton Vance" or the
"Adviser").  Eaton  Vance was one of the first  investment  advisers to manage a
portfolio of Senior Loans in a publicly offered investment company, and has done
so  continuously  since 1989.  As of May 31,  2001,  Senior  Loan  assets  under
management by Eaton Vance exceeded $9 billion.

Senior Loans are made to corporations,  partnerships and other business entities
("Borrowers")  which operate in various  industries  and  geographical  regions.
Senior Loans pay interest at rates which are  redetermined  periodically  on the
basis of a floating base lending rate plus a premium. Senior Loans typically are
of below  investment  grade  quality  and have  below  investment  grade  credit
ratings,  which  ratings  are  associated  with  securities  having  high  risk,
speculative characteristics.  Because of the protective features of Senior Loans
(being  senior  in a  Borrower's  capital  structure  and  secured  by  specific
collateral),  the Adviser believes,  based on its experience,  that Senior Loans
tend to have more  favorable loss recovery rates compared to most other types of
below investment grade obligations. An investment in the Preferred Shares is not
appropriate  for all  investors  and there is no  assurance  that the Trust will
achieve its investment objective.

BEFORE BUYING ANY OF THESE PREFERRED SHARES,  YOU SHOULD CAREFULLY  CONSIDER THE
RISK FACTORS DESCRIBED IN "INVESTMENT  OBJECTIVE,  POLICIES AND RISKS" BEGINNING
ON PAGE 8.

NEITHER  THE  SECURITIES  AND  EXCHANGE  COMMISSION  NOR  ANY  STATE  SECURITIES
COMMISSION HAS APPROVED OR  DISAPPROVED  OF THESE  SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                                                Per share               Total
--------------------------------------------------------------------------------
Public offering price                           $25,000             $110,000,000
--------------------------------------------------------------------------------
Underwriting discounts and commissions             $250               $1,100,000
--------------------------------------------------------------------------------
Proceeds, before expenses, to the Trust (1)     $24,750             $108,900,000
--------------------------------------------------------------------------------
(1)  Plus accumulated dividends,  if any, from the date the Preferred Shares are
     issued


UBS WARBURG
           SALOMON SMITH BARNEY
                                A.G. EDWARDS & SONS, INC.
                                                           PRUDENTIAL SECURITIES


The information in this prospectus is incomplete and may be changed.  We may not
sell these securities until the registration statement filed with the Securities
and Exchange  Commission is effective.  This  prospectus is not an offer to sell
these securities,  and we are not soliciting offers to buy these securities,  in
any state where the offer or sale is not permitted.


(continued from previous page)

The  Preferred  Shares are being offered by the  Underwriter  subject to certain
conditions. The Underwriter reserves the right to withdraw, cancel or modify the
offering in whole or in part. It is expected  that the Preferred  Shares will be
delivered  to the  nominee of The  Depository  Trust  Company on or about June ,
2001.

Investors in Preferred  Shares will be entitled to receive cash  dividends at an
annual rate that may vary for the successive  dividend  periods for such shares.
The dividend rate on the Series A Preferred  Shares for the initial  period from
and including  the date of issue to, but  excluding,  ___________,  2001 will be
____% per year.  The  dividend  rate on the  Series B  Preferred  Shares for the
initial  period  from  and  including  the  date of  issue  to,  but  excluding,
__________, 2001 will be ____% per year. For each subsequent period, the auction
agent will  determine  the dividend  rate for a particular  period by an auction
conducted on the business day prior to that period. Preferred Shares will not be
listed on an exchange. Investors in Preferred Shares may participate in auctions
through  dealers that have entered into an agreement  with the auction agent and
the Trust in accordance with the procedures specified herein. Broker-dealers are
not required to maintain a secondary market in Preferred Shares, and a secondary
market may not provide you with liquidity. The Trust may redeem Preferred Shares
as described under "Description of Preferred Shares-REDEMPTION."

The Preferred  Shares will be senior in liquidation and  distribution  rights to
the Trust's  outstanding  common shares. The Trust's common shares are traded on
the New York Stock Exchange under the symbol "EVF." This offering is conditioned
upon the Preferred Shares being rated "aaa" from Moody's Investors Service, Inc.

This  prospectus sets forth concisely  information  that a prospective  investor
should know before  investing in Preferred  Shares.  Please read and retain this
prospectus for future reference.  A statement of additional  information ("SAI")
dated  __________,  2001,  has been  filed  with  the  Securities  and  Exchange
Commission ("SEC") and can be obtained without charge by calling  1-800-225-6265
or by writing to the Trust. A table of contents to the SAI is located on page 30
of this  prospectus.  This prospectus  incorporates by reference the entire SAI.
The SAI is  available  along with  other  Trust-related  materials  at the SEC's
public reference room in Washington,  DC (call 1-202-942-8090 for information on
the  operation  of the  reference  room);  on the  EDGAR  Database  on the SEC's
internet site (http://www.sec.gov); or, upon payment of copying fees, by writing
to  the  SEC's  public  reference  section,  Washington,  DC  20549-0102,  or by
electronic  mail at  publicinfo@sec.gov.  The Trust's address is The Eaton Vance
Building, 255 State Street, Boston, Massachusetts 02109 and its telephone number
is 1-800-225-6265.

The Preferred  Shares do not  represent a deposit or obligation  of, and are not
guaranteed or endorsed by, any bank or other insured depository institution, and
are not federally  insured by the Federal  Deposit  Insurance  Corporation,  the
Federal Reserve Board or any other government agency.

You should rely only on the  information  contained or incorporated by reference
in this prospectus. The Trust has not, and the Underwriters have not, authorized
anyone to provide you with different  information.  If anyone  provides you with
different or inconsistent  information,  you should not rely on it. The Trust is
not, and the  Underwriters  are not, making an offer to sell these securities in
any state where the offer or sale is not  permitted.  You should not assume that
the  information  contained in this  prospectus is accurate as of any date other
than the date on the front of this prospectus.  The Trust's business,  financial
condition,  results of the  operations and prospects may have changed since that
date.

Until , 2001 (25 days after the date of this prospectus),  all dealers that buy,
sell or  trade  the  Preferred  Shares,  whether  or not  participating  in this
offering,  may be required to deliver a  prospectus.  This is in addition to the
dealers'  obligation to deliver a prospectus when acting as underwriter and with
respect to their unsold allotments or subscriptions.



TABLE OF CONTENTS
----------------------------------------------------------------------------------------------------------------------------
                                                                                                                 

Prospectus summary.....................................1        The auction...............................................25

Financial highlights and investment performance........5        Rating agency guidelines..................................27

The Trust..............................................6        Underwriting..............................................28

Capitalization.........................................6        Shareholder servicing agent, custodian and
                                                                  transfer agent..........................................28
Portfolio composition..................................6
                                                                Legal matters.............................................29
Use of proceeds........................................8
                                                                Experts...................................................29
Investment objective, policies and risks...............8
                                                                Additional information....................................29
Organization and management of the Trust..............16
                                                                Table of contents for the SAI.............................30
Federal taxation......................................18

Description of Preferred Shares.......................20



























                      [This page intentionally left blank]




Prospectus summary

This  is only a  summary.  You  should  review  the  more  detailed  information
contained in this prospectus and in the SAI.

THE TRUST

Eaton Vance Senior Income Trust (the "Trust") is a  non-diversified,  closed-end
management  investment  company  registered under the Investment  Company Act of
1940, as amended (the "Investment Company Act"). The Trust commenced  operations
on  October  30,  1998.  As of May 31,  2001,  total  assets of the  Trust  were
approximately $471 million.

THE OFFERING

The Trust is offering an aggregate of 2,200 Series A Preferred  Shares and 2,200
Series B Preferred  Shares,  each at a purchase  price of $25,000 per share plus
accumulated  dividends,  if any, from the date of original issue.  The Preferred
Shares are being offered through a group of underwriters  led by UBS Warburg LLC
(collectively, the "Underwriters"). See "Underwriting."

The Preferred  Shares will entitle their holders to receive cash dividends at an
annual rate that may vary for successive dividend periods. In general, except as
described  under  "Description  of  Preferred  Shares  -DIVIDENDS  AND  DIVIDEND
PERIODS," each dividend  period will be 7 days. The auction agent will determine
the  dividend  rate for a  particular  period  by an  auction  conducted  on the
business day immediately prior to the start of that dividend period.

The Preferred Shares are not listed on an exchange.  Instead,  investors may buy
or sell  Preferred  Shares  at an  auction  that  normally  is held  weekly,  by
submitting orders to broker-dealers that have entered into an agreement with the
auction  agent and the Trust or to certain other  broker-dealers.  Bankers Trust
Company,  the auction  agent,  reviews orders from  broker-dealers  on behalf of
existing  holders that wish to sell or hold at the auction rate, or hold only at
a specified  dividend rate, and on behalf of potential  holders that wish to buy
Preferred  Shares.  The auction agent then  determines the lowest  dividend rate
that will result in all of the  outstanding  Preferred  Shares  continuing to be
held.  The first  auction date for Series A Preferred  Shares will be , 2001 and
the first  auction date for Series B Preferred  Shares will be , 2001,  each the
business day before the dividend  payment date for the initial  dividend  period
for  Preferred  Shares.  The auction  day for Series A Preferred  Shares will be
Tuesday and for Series B  Preferred  Shares  will be  Thursday,  unless the then
current dividend period is a special rate period, or the day that normally would
be the auction date or the first day of the subsequent  dividend period is not a
business day.

INVESTMENT OBJECTIVE, POLICIES AND RISKS

The Trust's  investment  objective is to provide a high level of current income,
consistent with preservation of capital, by investing primarily in Senior Loans.
Senior Loans generally are made to Borrowers which operate in various industries
and  geographical  regions.  Senior  Loans  pay  interest  at  rates  which  are
redetermined  periodically  by reference to a base lending  rate,  primarily the
London  Inter-bank  Offered Rate  ("LIBOR"),  plus a premium.  In normal  market
conditions,  at least  80% of the  Trust's  total  assets  will be  invested  in
interests in Senior  Loans.  It is  anticipated  that the proceeds of the Senior
Loans in which  the  Trust  will  acquire  interests  primarily  will be used to
finance  leveraged  buyouts,  recapitalizations,  mergers,  acquisitions,  stock
repurchases,  and, to a lesser extent,  to finance internal growth and for other
corporate purposes of Borrowers.

The Trust may invest up to 20% of its total assets in: loan interests  which are
not secured by any, or that have lower than a senior claim on, collateral; other
income  producing   securities  such  as  investment  and  non-investment  grade
corporate  debt  securities  and U.S.  government  and  U.S.  dollar-denominated
foreign government or supranational  debt securities  (subject to the limit that
not  more  than  10% of the  Trust's  total  assets  may  have a  fixed  rate of
interest);  and warrants and equity  securities  acquired in connection with its
investments  in  Senior  Loans.  The Trust may also  engage  in  lending  of its
securities,  repurchase  agreements,  reverse  repurchase  agreements  and,  for
hedging and risk  management  purposes,  certain  derivative  transactions.  See
"Investment objective, policies and risks."

                                       1

Investing in Senior Loans involves  investment  risk. Some Borrowers  default on
their Senior Loan  payments.  The Trust  attempts to manage  credit risk through
portfolio  diversification and ongoing analysis and monitoring of Borrowers. The
Trust also is subject to market, liquidity, interest rate and other risks.

LEVERAGE

The Trust  utilizes  financial  leverage  on an  ongoing  basis  for  investment
purposes.  The Trust  borrows  money  through a credit  facility  program  equal
currently to approximately  30.9% of the Trust's total assets.  After completion
of the offering of Preferred  Shares,  the Trust  anticipates  that this will be
reduced to  approximately  20.2%,  and total  leverage from  borrowings  and the
issuance of  Preferred  Shares  will be  approximately  40.3%.  This amount will
change, but total leverage will not exceed 50% of the Trust's total assets.

The Trust  generally will not utilize  leverage if it anticipates  that it would
result in a lower  return to common  shareholders  over time.  Use of  financial
leverage  creates an opportunity  for increased  income for common  shareholders
but, at the same time,  creates the  possibility for greater loss (including the
likelihood  of greater  volatility  of net asset  value and market  price of the
shares  and of  dividends),  and there  can be no  assurance  that a  leveraging
strategy will be successful  during any period in which it is employed.  Because
leverage  achieved  through  borrowings and the issuance of Preferred  Shares is
based on a floating rate of interest that  fluctuates  similarly to the floating
rate on Senior Loans in the Trust's portfolio,  the Adviser believes that market
interest rate  fluctuations  should not adversely  affect  returns on the Senior
Loans obtained with the proceeds of such borrowings.  See "Investment objective,
policies and risks-USE OF LEVERAGE AND RELATED RISKS."

INVESTMENT ADVISER AND ADMINISTRATOR

Eaton Vance Management,  a wholly-owned  subsidiary of Eaton Vance Corp., is the
Trust's  investment  adviser  and  administrator.  Scott H.  Page and  Payson F.
Swaffield are co-portfolio  managers of the Trust and have each served as Senior
Loan  investment   professionals   at  Eaton  Vance  for  over  a  decade.   See
"Organization and management of the Trust."

DIVIDENDS

The table  below  shows the  dividend  rates for the  initial  rate  periods  on
Preferred Shares offered in this prospectus.  For subsequent  dividend  periods,
Preferred  Shares will pay dividends  based on a rate set at auctions,  normally
held every 7 days. In most instances dividends are also payable every 7 days, on
the first business day following the end of the rate period. See "Description of
Preferred Shares" and "The auction."

The table below also shows the dividend  payment dates for the initial  dividend
periods. If the day on which dividends otherwise would be paid is not a business
day, then dividends will be paid on the first business day that falls after that
day.

Finally,  the table  below  shows the  number  of days of the  initial  dividend
periods for Preferred Shares.  Subsequent rate periods generally will be 7 days.
The  dividend  payment date for special rate periods of more than 7 days will be
set out in the notice  designating a special rate period.  See  "Description  of
Preferred Shares."



                                                                        Dividend payment dates for        Number of days of initial
Preferred Shares                         Initial dividend rates          initial dividend periods              dividend periods
----------------------------------- --------------------------------- -------------------------------- -----------------------------
                                                                                                  
Series A                                                %                              , 2001
                                               ---------                     ----------
Series B                                                %                              , 2001
                                               ---------                     ----------


RISK CONSIDERATIONS

Risks of investing in Preferred Shares include:

>>   borrowings  of the Trust may  constitute a  substantial  lien and burden on
     your  Preferred  Shares by reason of its prior claim  against the income of
     the Trust and against  the total  assets of the Trust in  liquidation,  the
     effect of which would be  magnified  by  decreases  in value of the Trust's
     investments;

                                       2

>>   the Trust will not be permitted to declare dividends or other distributions
     with respect to your Preferred  Shares or call your Preferred Shares unless
     the Trust meets certain asset coverage  requirements  and is not in default
     under  the  terms  of  any  senior  indebtedness   (including  a  borrowing
     facility);

>>   if an  auction  fails  you may  not be  able  to  sell  some or all of your
     Preferred Shares and the Trust is not obliged to call your Preferred Shares
     if the auctions fails;

>>   you could receive less than the price you paid for your Preferred Shares if
     you sell them outside of the auction, especially when market interest rates
     are rising;

>>   the rating  agency could  downgrade  Preferred  Shares,  which could affect
     their liquidity and value;

>>   the Trust may be forced to call your Preferred Shares to meet regulatory or
     rating agency requirements or may voluntarily call your Preferred Shares in
     certain circumstances;

>>   in extraordinary  circumstances,  the Trust may not earn sufficient  income
     from its investments to pay dividends;

>>   if long-term rates rise, the value of the Trust's investment  portfolio may
     decline, reducing asset coverage on the Preferred Shares; and

>>   if a Borrower  to which the Trust lends  defaults,  there may be a negative
     impact on the Trust's income and asset coverage.

The primary risks of investing in the Trust include the risk of:  non-payment of
scheduled interest or principal by Borrowers;  collateral securing a Senior Loan
being  inadequate  to cover a Borrower's  obligations  if a default  occurs;  an
increase in  prevailing  interest  rates,  although  floating  rate  obligations
mitigate  this risk;  volatility  in net asset  value from the use of  financial
leverage,  and in interest  rates which affect  dividends paid to all classes of
shares;  investing  in Senior  Loans of  foreign  Borrowers;  a change in market
demand for Senior Loans affecting their value; and concentrating  investments in
a limited number of issuers.

For further  discussion of the risks of investing,  see  "Investment  objective,
policies and risks."

ASSET MAINTENANCE

The Trust must maintain asset coverage of the Preferred  Shares of at least 200%
as required by the Investment Company Act, as well as asset coverage as required
by the agency rating the Preferred Shares.

Based on the  composition of the Trust's  portfolio and market  conditions as of
May 31, 2001, the asset coverage of the Preferred Shares as measured pursuant to
the  Investment  Company  Act would be  approximately  247% if the Trust were to
issue  all   Preferred   Shares   offered  in  this   prospectus,   representing
approximately  20% of the Trust's  total  assets,  and reduce its  borrowings as
planned.

In addition,  under the Trust's current  borrowing  facility,  the Trust's asset
coverage  ratio (as defined  separately  by a related  credit  agreement) is not
permitted  to fall  below 300% at any time  without  causing an event of default
under the credit agreement. See "Investment objective, policies and risks-USE OF
LEVERAGE AND RELATED RISKS."

LIQUIDATION PREFERENCE

The  liquidation  preference of the Preferred  Shares over common shares will be
$25,000 per share,  plus an amount  equal to  accumulated  but unpaid  dividends
(whether or not earned or declared).  In addition,  holders of Preferred  Shares
may be entitled to receive additional  dividends in the event of the liquidation
of the Trust as provided herein. See "Description of Preferred Shares."

                                       3

INDEPENDENT CREDIT RATING

It is a condition to their issuance that the Preferred  Shares be issued with an
"aaa" credit quality rating from Moody's Investor Services, Inc. ("Moody's").  A
rating is not a financial guarantee and can change. The Trust may at some future
time seek to have the  Preferred  Shares  rated by another  rating  agency.  See
"Rating agency guidelines."

VOTING RIGHTS

The Investment Company Act requires that the holders of Preferred Shares and any
other preferred  shares,  voting as a separate class, have the right to elect at
least two  trustees at all times and to elect a majority of the  trustees at any
time when two years'  dividends on the Preferred  Shares or any other  preferred
shares are  unpaid.  The  holders of  Preferred  Shares and any other  preferred
shares will vote as a separate  class on certain other matters as required under
the Trust's  Agreement and Declaration of Trust and the Investment  Company Act.
See "Description of Preferred Shares."

INCOME TAXES

Dividends paid with respect to Preferred Shares should constitute  dividends for
federal income tax purposes to the extent attributable to the Trust's current or
accumulated  earnings and profits.  These dividends generally will be taxable as
ordinary income to holders.  Corporate holders of the Preferred Shares generally
will not be entitled to the dividends  received  deduction for these  dividends.
Distributions of net capital gain, to the extent so designated,  will be treated
as long-term capital gains. See "Federal taxation."

                                       4

Financial highlights and investment performance

The  following  information  should  be read in  conjunction  with  the  audited
financial statements that appear in the Trust's semiannual and annual reports to
shareholders.  The Trust's financial  statements have been audited by Deloitte &
Touche LLP, independent  certified public accountants,  as experts in accounting
and auditing.  The financial statements and the independent auditors' report are
incorporated by reference into the SAI.



                                                                                                          YEAR ENDED JUNE 30,
                                                        SIX MONTHS ENDED                        ------------------------------------
                                                        DECEMBER 31, 2000             2000                   1999(1)(2)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
Net asset value-Beginning of period..................      $   9.810                $ 10.090                 $  10.000
Income (loss) from operations
   Net investment income.............................      $   0.463                $  0.868                 $   0.539
   Net realized and unrealized gain (loss)...........         (0.617)                 (0.271)                    0.036
                                                           ----------               ---------                ---------
   Total income (loss) from operations...............      $  (0.154)               $  0.597                 $   0.575
Less distributions
   From net investment income........................      $  (0.536)               $ (0.865)                $  (0.465)
   In excess of net realized gain....................         --                      (0.012)                   --
Total distributions..................................      $  (0.536)               $ (0.877)                $  (0.465)
Offering costs charged to paid-in capital............         --                      --                        (0.020)
Net asset value-End of period........................      $   9.120                $  9.810                 $  10.090
Market value-End of period...........................      $   8.375                $  9.313                 $  10.000
Total Return(3)......................................         (4.72)%                  2.00%                     4.93%

RATIOS/SUPPLEMENTAL DATA+
Net assets, end of period (in thousands).............      $ 325,348                $ 349,803                $ 359,705
Ratios (as a percentage of average daily net assets):
     Net expenses....................................           1.88%(4)                1.84%                     1.65%(4)
     Interest expense................................           2.74(4)                 2.41                      2.02(4)
     Total expense...................................           4.62(4)                 4.25                      3.67
     Net investment income...........................           9.69(4)                 8.73                      8.17(4)
Portfolio Turnover...................................             28%                     63%                       27%
+    The  operating  expenses  of the  Trust  may  reflect  a  reduction  of the
     investment  adviser fee and the  administration  fee.  Had such actions not
     been taken, the ratios and net investment  income per share would have been
     as follows:
   Ratios (as a percentage of average daily net assets):
     Expenses........................................                                                             1.97%(4)
     Interest expense................................                                                             2.02(4)
     Net investment income...........................                                                             7.85(4)
     Net investment income per share.................                                                           $0.518


(1)  Net  investment  income per share was computed  using average common shares
     outstanding.
(2)  For the period from the start of business,  October 30,  1998,  to June 30,
     1999.
(3)  Total return is calculated assuming a purchase at market value on the first
     day and a sale at the market value on the last day of the period  reported.
     Dividends  and  distributions,  if  any,  are  assumed  reinvested  on  the
     reinvestment date. Total return is not computed on an annualized basis.
(4)  Annualized.


LEVERAGE ANALYSIS
------------------------ --------------------- ---------------------- --------------------- --------------------- ------------------
                            AMOUNT OF DEBT     AVERAGE DAILY BALANCE     ASSET COVERAGE        AVERAGE DAILY       AVERAGE AMOUNT OF
                            OUTSTANDING AT      OF DEBT OUTSTANDING      PER $1,000 OF            BALANCE            DEBT PER SHARE
YEAR                         END OF YEAR            DURING YEAR           INDEBTEDNESS           OF SHARES             DURING YEAR
                                                                                                OUTSTANDING
                                                                                                DURING YEAR
------------------------ --------------------- ---------------------- --------------------- --------------------- ------------------
                                                                                                           
June 30, 1999 (a)...         $152,000,000          $142,000,000            $3,366.48             35,660,000               $3.98
June 30, 2000.......          129,000,000            140,000,000             3,711.65            35,660,000                3.93
December 31, 2000 (b)         121,000,000            134,000,000             3,688.83            35,660,000                3.76

------------------
(a)  For the period from the start of business,  October 30,  1998,  to June 30,
     1999.
(b)  For the six month ended December 31, 2000.

                                       5

The Trust

Eaton Vance Senior  Income  Trust is a  non-diversified,  closed-end  management
investment  company which was  organized as a  Massachusetts  business  trust on
September 23, 1998.  The Trust  commenced  investment  operations on October 30,
1998 upon the  closing of an initial  public  offering  of its common  shares of
beneficial  interest.  On May 31,  2001,  the Trust had  outstanding  35,823,660
common shares.  As of May 31, 2001, the Trust had total assets of  approximately
$471 million and net assets of approximately $324 million. The Trust's principal
office is located at The Eaton Vance  Building,  255 State  Street,  Boston,  MA
02109 and its telephone number is 1-800-225-6265.

Capitalization

The following table sets forth the unaudited  capitalization  of the Trust as of
May 31, 2001 and as adjusted  to give  effect to the  issuance of the  Preferred
Shares offered hereby (including  estimated  offering expenses and sales load of
$1,300,000).


                                                                                                         As of May 31, 2001
                                                                                              --------------------------------------
                                                                                              Actual                    As adjusted
--------------------------------------------------------------------------------------------- --------------------------------------
                                                                                                                 
Shareholders' equity:
     Auction Preferred Shares, $0.01 par value (no shares issued; 4,400 shares issued, as
     adjusted, at $25,000 per share liquidation preference)............................                   ---          $ 110,000,000
     Common Shares, $0.01 par value per share, (35,823,660 shares outstanding).........         $     328,237                328,237
Capital in excess of par value.........................................................           357,015,654            355,715,654
                                                                                                -------------          -------------
Undistributed net investment income....................................................             2,500,014              2,500,014
                                                                                                -------------          -------------
Net realized gain (loss) from investment transactions..................................          (14,561,498)           (14,561,498)
                                                                                                -------------          -------------
Net unrealized depreciation of investments.............................................          (21,288,678)           (14,561,498)
                                                                                                -------------        ---------------
Net assets.............................................................................         $ 324,023,729          $ 432,723,729
                                                                                                =============          =============


Portfolio composition

The  following  tables  set  forth  certain  information  with  respect  to  the
characteristics and the composition of the Trust's investment portfolio in terms
of percentages of net assets and total assets as of May 31, 2001.

PORTFOLIO CHARACTERISTICS

Net assets..........................................................$324,023,729
Total assets........................................................$471,384,288
Assets invested in Senior Loans and other loans.....................$405,852,449
Average amount outstanding per loan...................................$1,870,287
Total number of industries....................................................53
Average loan amount per industry......................................$7,657,593
Portfolio turnover (six months ended December 31, 2000)......................28%
Weighted average days to next interest rate reset........................41 days
Average loan maturity..................................................62 months
Average age of loans held in the portfolio...........................14.5 months
Assets invested in other debt obligations............................$38,175,574
Assets invested in preferred stocks, common stock and warrants........$4,104,907

                                       6

TOP 10 SENIOR LOAN INDUSTRIES AS A PERCENTAGE OF ASSETS ON MAY 31, 2001

                                                   Net                     Total
                                                  assets                  assets
--------------------------------------------------------------------------------
Cable Television...................................9.90%                   6.80%
Telecommunications-Wireless........................9.56                    6.57
Manufacturing......................................6.74                    4.64
Chemicals..........................................6.28                    4.32
Broadcast Media....................................4.76                    3.27
Containers & Packaging-Paper.......................4.35                    2.99
Real Estate........................................4.28                    2.94
Health Care-Providers & Services...................4.22                    2.90
Entertainment......................................4.14                    2.85
Casinos & Gaming...................................4.04                    2.78

TOP 10 SENIOR LOANS AS A PERCENTAGE OF ASSETS ON MAY 31, 2001

                                                    Net                    Total
                                                   assets                 assets
--------------------------------------------------------------------------------
Insight Midwest Holdings, LLC......................1.55%                   1.07%
Century Cable Holdings, LLC........................1.54                    1.06
Charter Communications Operating, LLC..............1.54                    1.06
Voicestream PCS Holdings, LLC......................1.54                    1.06
Nextel Communications, Inc.........................1.48                    1.01
Huntsman International.............................1.40                    0.96
Broadwing Inc......................................1.31                    0.90
Lyondell Petrochemical Company.....................1.25                    0.86
Panavision Internationa, L.P.......................1.25                    0.86
Western Wireless...................................1.23                    0.85

MOODY'S SECURITIES RATINGS
(Senior Loans only-86% of total assets)
(As of May 31, 2001)+

                                                                  Percentage of
                Moody's credit ratings                            Senior Loans
                ----------------------                            ------------
                Aaa - Baa                                              2.1%
                Ba                                                    53.2
                B                                                     21.7
                Caa                                                    1.5
                Ca - D                                                 0.0
                Not Rated++                                           21.5

+    The  ratings  of  Moody's  represent  their  opinion  as to the  quality of
     securities that they undertake to rate. Ratings are relative and subjective
     and not absolute  standards of quality.  Moody's ratings  categories may be
     modified  further  by a 1, 2 or 3 in Aa, A, Baa,  Ba, B and Caa  ratings
++   Securities  that are not  rated  by  Moody's  may be  rated  by  nationally
     recognized  statistical rating organizations other than Moody's, or may not
     be rated by any such  organization.  With respect to the  percentage of the
     Trust's assets invested in such securities, Eaton Vance believes that these
     are of comparable quality to rated securities.  This determination is based
     on the Adviser's own internal  evaluation and does not necessarily  reflect
     how such  securities  would be rated by  Moody's  if they  were to rate the
     securities.  Accordingly,  the Adviser believes most of the Trust's unrated
     securities are of Ba or B quality

                                       7

Use of proceeds

The proceeds of this offering,  after deduction of offering expenses  (including
sales load), are estimated to be  $108,700,000.  The Trust will use the proceeds
to repay  approximately  $36  million of the Trust's  borrowings  under a credit
facility  and the  remainder  will be  invested in  accordance  with the Trust's
investment objective and policies as soon as practicable, but in no event, under
normal  market  conditions,  later than three months after the receipt  thereof.
Pending  such  investment,   the  proceeds  may  be  invested  in  high-quality,
short-term debt securities.  Thus,  shortly after completion of the offering the
Trust is expected to have $110  million in each of  Preferred  Shares and credit
facility borrowings, making total assets approximately $544 million.

Investment objective, policies and risks

INVESTMENT OBJECTIVE

The Trust's investment objective is to provide shareholders with a high level of
current income,  consistent with preservation of capital, by investing primarily
in senior  secured  floating  rate loans  ("Senior  Loans").  Investment in such
floating  rate  instruments  is expected to minimize  changes in the  underlying
principal value of the Senior Loans,  and therefore the Trust's net asset value,
resulting  from changes in market  interest  rates.  The borrowers of such loans
will be  corporations,  partnerships and other business  entities  ("Borrowers")
which operate in a variety of industries and geographical regions.

INVESTMENT POLICIES--GENERAL COMPOSITION OF THE TRUST

In normal  market  conditions,  at least 80% of the  Trust's  total  assets  are
invested (generally by the purchase of assignments) in interests in Senior Loans
of  domestic  or  foreign   Borrowers   (so  long  as  foreign  loans  are  U.S.
dollar-denominated  and payments of interest  and  repayments  of principal  are
required  to be made in U.S.  dollars).  The Trust  may  invest up to 20% of its
total assets in: (i) loan interests which are not secured by any, or that have a
lower than senior claim on, collateral,  (ii) other income producing  securities
such as investment and  non-investment  grade corporate debt securities and U.S.
government and U.S.  dollar-denominated foreign government or supranational debt
securities  (subject  to the limit  that no more than 10% of the  Trust's  total
assets may be invested in securities  with a fixed rate of interest),  and (iii)
warrants and equity securities issued by a Borrower or its affiliates as part of
a package of  investments  in the  Borrower  or its  affiliates.  If the Adviser
determines that market  conditions  temporarily  warrant a defensive  investment
policy,  the Trust may invest up to 100% of its assets in cash and high quality,
short-term debt securities.

Senior Loans in which the Trust  invests  generally  pay interest at rates which
are  redetermined  periodically  by  reference to a base  lending  rate,  plus a
premium.  The base  lending rate  primarily is LIBOR,  but can also be the prime
rate  offered by one or more major  United  States  banks,  the  certificate  of
deposit rate or other base lending rates used by commercial lenders.

The proceeds of the Senior Loans in which the Trust acquires interests primarily
will  be  used  to  finance  leveraged  buyouts,   recapitalizations,   mergers,
acquisitions,  stock  repurchases,  and, to a lesser extent, to finance internal
growth and for other corporate purposes of Borrowers. Senior Loans have the most
senior position in a Borrower's  capital  structure,  although some Senior Loans
may hold an equal  ranking with other senior  securities  of the  Borrower.  The
capital  structure of a Borrower  may include  Senior  Loans,  senior and junior
subordinated  debt,  preferred  stock and common stock  issued by the  Borrower,
typically  in  descending  order of  seniority  with  respect  to  claims on the
Borrower's  assets  (described  below).  Senior  Loans are  secured by  specific
collateral.

In order to borrow money pursuant to a Senior Loan, a Borrower will  frequently,
for the term of the Senior Loan,  pledge  collateral,  including but not limited
to: (i) working capital assets, such as accounts receivable and inventory;  (ii)
tangible  fixed assets,  such as real property,  buildings and equipment;  (iii)
intangible  assets,   such  as  trademarks  and  patent  rights  (but  excluding
goodwill);  and (iv) security  interests in shares of stock of  subsidiaries  or
affiliates.  In the case of  Senior  Loans  made to  non-public  companies,  the
company's  shareholders or owners may provide  collateral in the form of secured
guarantees and/or security interests in assets that they own. In many instances,
a Senior Loan may be secured only by stock in the Borrower or its  subsidiaries.
Collateral may consist of assets that may not be readily  liquidated,  and there
is no  assurance  that the  liquidation  of such assets  would  satisfy  fully a
Borrower's  obligations  under a Senior  Loan.  The Trust  will not  invest in a
Senior Loan unless, at the time of investment,  the Adviser  determines that the
value of the collateral  equals or exceeds the aggregate  outstanding  principal
amount of the Senior Loan.

                                       8

The Trust may hold Senior Loans of any maturity.  Senior Loans  typically have a
stated  term of between  five and nine years,  and have rates of interest  which
typically are redetermined  either daily,  monthly,  quarterly or semi-annually.
Longer  interest  rate reset  periods  generally  increase  fluctuations  in the
Trust's net asset  value as a result of changes in market  interest  rates.  The
Senior Loans in the Trust's portfolio will have a dollar-weighted average period
until the next interest rate adjustment of  approximately  90 days or less. As a
result,  as short-term  interest rates increase,  interest  payable to the Trust
from its investments in Senior Loans should increase, and as short-term interest
rates  decrease,  interest  payable to the Trust from its  investments in Senior
Loans should decrease.  The Trust may utilize certain  investment  practices to,
among other things,  shorten the effective interest rate redetermination  period
of Senior Loans in its portfolio. In the experience of the Adviser over the last
decade,  because of prepayments the average life of Senior Loans has been two to
four years. As of May 31, 2001, the Trust had a  dollar-weighted  average period
to adjustment of approximately 41 days.

A lender may have certain  obligations  pursuant to a loan agreement relating to
Senior  Loans,  which may include the  obligation  to make  additional  loans in
certain circumstances.  The Trust generally will reserve against such contingent
obligations by segregating a sufficient  amount of cash,  liquid  securities and
liquid Senior Loans,  subject to the Trust's  borrowing  limitations.  The Trust
will not purchase interests in Senior Loans that would require the Trust to make
any such additional  loans if such additional loan  commitments in the aggregate
would exceed 20% of the Trust's total assets or would cause the Trust to fail to
meet its tax diversification requirements.

The Trust may  purchase  and  retain in its  portfolio  Senior  Loans  where the
Borrowers  have  experienced,  or may be perceived  to be likely to  experience,
credit  problems,  including  involvement in or recent emergence from bankruptcy
reorganization   proceedings  or  other  forms  of  debt   restructuring.   Such
investments  may provide  opportunities  for enhanced  income as well as capital
appreciation.  At times, in connection with the  restructuring  of a Senior Loan
either  outside  of  bankruptcy  court or in the  context  of  bankruptcy  court
proceedings,  the Trust may determine or be required to accept equity securities
or junior debt securities in exchange for all or a portion of a Senior Loan.

The  Trust may  purchase  shares of other  investment  companies  with a similar
investment objective and policies as permitted under the Investment Company Act.
Such  investments are limited to 10% of total assets overall,  with no more than
5% invested in any one issue. The value of shares of other closed-end investment
companies is affected by risks similar to those of the Trust, such as demand for
those securities  regardless of the demand for the underlying  portfolio assets.
Investment companies bear fees and expenses that the Trust will bear indirectly,
so investors in the Trust will be subject to duplication of fees. The Trust also
may invest up to 5% of its total assets in structured notes with rates of return
determined  by reference to the total rate of return on one or more Senior Loans
referenced  in such  notes.  The rate of  return on the  structured  note may be
determined  by  applying  a  multiplier  to the  rate  of  total  return  on the
referenced  Senior Loan or Loans.  Application  of a multiplier is comparable to
the use of financial leverage, a speculative  technique.  Leverage magnifies the
potential for gain and the risk of loss; as a result, a relatively small decline
in the value of a referenced Loan could result in a relatively large loss in the
value of a structured note. See "Investment objective, policies and risks-USE OF
LEVERAGE AND RELATED RISKS." Shares of other investment companies that invest in
Senior Loans and  structured  notes will be treated as Senior Loans for purposes
of the Trust's policy of normally investing at least 80% of its assets in Senior
Loans, and may be subject to the Trust's leverage limitations.

The Trust has adopted certain fundamental  investment  restrictions set forth in
the SAI which may not be changed  without a  shareholder  vote.  Except for such
restrictions,  the investment objective and policies of the Trust may be changed
by  the  Board  of  Trustees  ("Board  of  Trustees"  or  "Trustees"),   without
shareholder action.

OTHER INCOME PRODUCING SECURITIES

The Trust,  with respect to 20% of its total  assets,  may purchase a variety of
U.S.  and  foreign  corporate  and  government  debt  obligations  that are U.S.
dollar-denominated. The Adviser may consider capital appreciation potential when
investing  in such  income  producing  debt  securities,  which may have  fixed,
variable or floating  rates of  interest.  These  securities  may  include:  (i)
interests  in loans from  Borrowers  that are not  secured by any,  or that have
lower than senior claim on, collateral,  (ii) other income producing  securities
such as investment and  non-investment  grade corporate debt securities and U.S.
government and U.S.  dollar-denominated foreign government or supranational debt
securities  (subject  to the limit  that no more than 10% of the  Trust's  total
assets may be invested in securities  with a fixed rate of interest),  and (iii)
warrants and equity securities issued by a Borrower or its affiliates as part of
a package of investments in the Borrower or its affiliates.

                                       9

ADDITIONAL INVESTMENT RISK CONSIDERATIONS

CREDIT RISK

Senior Loans, like other corporate debt obligations,  are subject to the risk of
non-payment of scheduled interest or principal. Such non-payment would result in
a reduction of income to the Trust,  a reduction in the value of the Senior Loan
experiencing  non-payment and a potential decrease in the net asset value of the
Trust.  Although,  with respect to Senior Loans, the Trust generally will invest
only in  Senior  Loans  that  the  Adviser  believes  are  secured  by  specific
collateral,  the value of which  equals or exceeds the  principal  amount of the
Senior Loan at the time of initial  investment,  there can be no assurance  that
the liquidation of any such collateral  would satisfy the Borrower's  obligation
in the event of non-payment of scheduled interest or principal payments, or that
such  collateral  could be readily  liquidated.  In the event of bankruptcy of a
Borrower,  the Trust could experience  delays or limitations with respect to its
ability to realize the benefits of the  collateral  securing a Senior  Loan.  As
with  other  collateral,  where  stock  of  the  Borrower  or  its  subsidiaries
collateralizes  a Senior Loan, such stock may lose all or  substantially  all of
its  value in the  event  of the  bankruptcy  of the  Borrower.  The loan  agent
generally  is  responsible  for  determining  that the lenders  have  obtained a
perfected  security  interest in the collateral  securing the Senior Loan.  Some
Senior Loans in which the Trust may invest are subject to the risk that a court,
pursuant to fraudulent  conveyance or other similar laws, could subordinate such
Senior Loans to  presently  existing or future  indebtedness  of the Borrower or
take other action detrimental to the holders of Senior Loans, such as the Trust,
including, in certain circumstances, invalidating such Senior Loans.

Senior  Loans  issued  in  connection  with  mergers,  acquisitions,   leveraged
buy-outs,  recapitalizations and other highly leveraged transactions,  which may
pose a higher  risk of default or  bankruptcy  of the issuer  than other  higher
quality  securities,  particularly  during  periods  of  deteriorating  economic
conditions and contraction in the credit markets. The investments in the Trust's
portfolio will have speculative characteristics, and companies obligated by such
debt are generally more vulnerable in an economic downturn.

Senior Loans in which the Trust will invest may not be rated by a rating agency,
and may not be registered  with the SEC or any state  securities  commission and
will not be listed  on any  national  securities  exchange.  Although  the Trust
generally will have access to financial and other  information made available to
the lenders in connection  with Senior Loans,  the amount of public  information
available  with respect to Senior Loans will  generally be less  extensive  than
that  available  for  rated,  registered  or  exchange  listed  securities.   In
evaluating the creditworthiness of Borrowers, the Adviser will consider, and may
rely in part, on analyses  performed by others.  Borrowers may have  outstanding
debt  obligations  that are rated  below  investment  grade by a rating  agency.
Rating  agencies  are now rating  Senior  Loans and most Senior  Loans have been
assigned a rating below  investment  grade.  Debt securities which are unsecured
and rated  below  investment  grade are viewed by the rating  agencies as having
speculative   characteristics   and  are  commonly  known  as  "junk  bonds."  A
description  of the ratings of  corporate  bonds by Moody's and Standard & Poors
Corporation  ("S&P")  is  included  as  Appendix  A to the SAI.  Because  of the
protective  features  of Senior  Loans  (being  senior and  secured by  specific
collateral),  the Adviser believes that Senior Loans tend to have more favorable
loss recovery  rates as compared to most other types of below  investment  grade
debt  obligations.  Accordingly,  the Adviser does not view ratings as a primary
factor in its  investment  decisions  and relies  more upon its credit  analysis
abilities than upon ratings.

The Trust may invest up to 20% of its total assets in:  loans of Borrowers  that
are not secured by any, or that have lower than a senior  claim on,  collateral;
warrants and equity securities acquired in connection with the Trust's ownership
of Senior Loans; and other income producing  securities such as investment grade
and below  investment  grade corporate debt  securities and U.S.  government and
U.S.  dollar-denominated  foreign  government or  supranational  debt securities
(subject to the limit that no more than 10% of the Trust's  total  assets may be
invested in securities  with a fixed rate of interest).  Securities  rated below
investment grade are commonly referred to as "junk bonds."

MARKET AND LIQUIDITY RISK

Most Senior Loans are valued by an independent  pricing service that uses market
quotations of investors  and traders in Senior Loans.  Economic and other events
(whether  real or perceived)  can reduce the demand for certain  Senior Loans or
Senior Loans generally, which may reduce market prices and cause the Trust's net
asset value per share to fall.  The  frequency  and  magnitude  of such  changes
cannot be predicted.  As of May 31, 2001, 90% of Senior Loan assets of the Trust
(based  on par  value)  were  valued  by an  independent  pricing  service.  The
remainder of the Trust's Senior Loans are valued at their fair value pursuant to
pricing procedures adopted by the Trust's Board of Trustees.

                                       10

Some Senior Loans are not readily  marketable and may be subject to restrictions
on resale.  Senior Loans  generally  are not listed on any  national  securities
exchange or automated  quotation  system and no active  trading market may exist
for some of the Senior Loans in which the Trust will  invest.  Where a secondary
market  exists,  such market for some Senior  Loans may be subject to  irregular
trading  activity,  wide bid/ask spreads and extended trade settlement  periods.
Senior  Loans that are  illiquid  may impair the Trust's  ability to realize the
full value of its assets in the event of a voluntary or involuntary  liquidation
of such assets.  The Trust has no  limitation  on the amount of its assets which
may be invested in securities which are not readily marketable or are subject to
restrictions on resale.  The risks  associated with illiquidity are particularly
acute in situations  where the Trust's  operations  require cash, such as if the
Trust  tenders for its  Shares,  and may result in the Trust  borrowing  to meet
short-term cash requirements.

INTEREST RATE RISK

When interest  rates  decline,  the value of a portfolio  invested in fixed rate
obligations can be expected to rise.  Conversely,  when interest rates rise, the
value of a  portfolio  invested  in fixed rate  obligations  can be  expected to
decline. Although the Trust's net asset value will vary, the Adviser expects the
Trust's policy of acquiring primarily interests in floating rate Senior Loans to
minimize  fluctuations  in net  asset  value as a result  of  changes  in market
interest  rates.  However,  because  floating  rates on Senior  Loans only reset
periodically, changes in prevailing interest rates can be expected to cause some
fluctuation in the Trust's net asset value.  Similarly, a sudden and significant
increase in market  interest  rates may cause a decline in the Trust's net asset
value. Moreover, as much as 10% of the total assets of the Trust may be invested
in income  securities  with  fixed  rates of  interest,  which may lose value in
direct response to market interest rate increases.

FOREIGN SECURITIES

Although  the  Trust  will  only  invest  in  U.S.   dollar-denominated   income
securities,  the Trust may invest in Senior Loans and other debt  securities  of
non-U.S. issuers.  Investment in securities of non-U.S. issuers involves special
risks,  including  that  non-U.S.  issuers  may  be  subject  to  less  rigorous
accounting  and  reporting   requirements  than  U.S.  issuers,   less  rigorous
regulatory requirements, differing legal systems and laws relating to creditors'
rights, the potential inability to enforce legal judgments and the potential for
political,  social  and  economic  adversity.  The  willingness  and  ability of
sovereign issuers to pay principal and interest on government securities depends
on various  economic  factors,  including  among others the issuer's  balance of
payments,  overall  debt  level,  and cash flow  considerations  related  to the
availability  of tax or other  revenues  to satisfy  the  issuer's  obligations.
Supranational  organizations  do not have taxing  powers,  so they are dependent
upon their  members'  continued  support in order to meet interest and principal
payments.  The  securities of some foreign  issuers are less liquid and at times
more volatile than securities of comparable  U.S.  issuers.  Foreign  settlement
procedures and trade regulations may involve certain risks (such as delay in the
payment or delivery of securities and interest or in the recovery of assets held
abroad) and  expenses  not present in the  settlement  of domestic  investments.
Investments may include securities issued by the governments of lesser-developed
countries, which are sometimes referred to as "emerging markets." There may be a
possibility  of  nationalization  or  expropriation  of  assets,  imposition  of
currency  exchange  controls,  confiscatory  taxation,  political  or  financial
instability,  armed conflict and diplomatic  developments which could affect the
value of the  Trust's  investments  in  certain  foreign  countries.  REGULATORY
CHANGES

To the extent that  legislation  or state or federal  regulators  that  regulate
certain financial  institutions  impose additional  requirements or restrictions
with respect to the ability of such institutions to make loans,  particularly in
connection with highly leveraged transactions,  the availability of Senior Loans
for investment by the Trust may be adversely affected. Further, such legislation
or regulation could depress the market value of Senior Loans held by the Trust.

NON-DIVERSIFICATION

The Trust has  registered as a  "non-diversified"  investment  company under the
Investment  Company Act so that,  subject to its investment  restrictions and in
connection with federal income tax rules  applicable to the Trust,  with respect
to 50% of its total assets,  it will be able to invest more than 5% of the value
of its assets in the obligations of any single issuer, including Senior Loans of
a single Borrower or single lender,  although it has no current  intention to do
so.  The Trust  will not  invest  more  than 10% of the  value of its  assets in

                                       11

securities  (including  interests  in  Senior  Loans)  of any  single  Borrower.
Moreover,  the  Trust  may  invest  more than 10% (but not more than 25%) of its
total  assets  in  Senior  Loan  interests  for  which  the  same   intermediate
participant is interposed between the Trust and the Borrower.  To the extent the
Trust invests a relatively  high  percentage of its assets in  obligations  of a
limited number of issuers, the Trust will be more susceptible than a more widely
diversified investment company to any single corporate,  economic,  political or
regulatory occurrence.

SPECIAL INVESTMENT PRACTICES

The Trust may engage in the  following  investment  practices to seek to enhance
income or reduce  investment  risk,  but has not yet done so and has no  current
intention to do so.

INTEREST RATE AND OTHER HEDGING TRANSACTIONS

The Trust may purchase or sell  derivative  instruments  (which are  instruments
that derive their value from another  instrument,  security or index) to seek to
hedge against  fluctuations in securities  prices or interest rates. The Trust's
transactions  in  derivative  instruments  may include:  the purchase or sale of
futures contracts on securities,  securities indices or other indices, and other
financial  instruments;  options  on  futures  contracts;   exchange-traded  and
over-the-counter options on securities or indices;  index-linked securities; and
interest rate swaps. The Trust's transactions in derivative  instruments involve
a risk  of  loss  or  depreciation  due to:  unanticipated  adverse  changes  in
securities prices,  interest rates, the other financial instruments' prices; the
inability  to close  out a  position;  default  by the  counterparty;  imperfect
correlation between a position and the desired hedge; tax constraints on closing
out positions;  and portfolio  management  constraints on securities  subject to
such  transactions.  The loss on derivative  instruments  (other than  purchased
options)  may  substantially  exceed the  Trust's  initial  investment  in these
instruments.  In  addition,  the  Trust  may lose the  entire  premium  paid for
purchased  options that expire  before they can be  profitably  exercised by the
Trust.  Transaction  costs will be incurred in opening and closing  positions in
derivative  instruments.  There can be no assurance  that the  Adviser's  use of
derivative instruments will be advantageous to the Trust.

The Trust may use interest rate swaps for risk management  purposes and not as a
speculative  investment  and would  typically use interest rate swaps to shorten
the average  interest  rate reset time of the Trust's  holdings.  Interest  rate
swaps involve the exchange by the Trust with another  party of their  respective
commitments  to pay or  receive  interests,  e.g.,  an  exchange  of fixed  rate
payments for floating rate payments.  The use of interest rate swaps is a highly
specialized  activity which involves  investment  techniques and risks different
from those  associated  with ordinary  portfolio  securities  transactions.  The
Adviser has had  limited  experience  in the use of interest  rate swaps but has
utilized other types of hedging and risk management  techniques.  If the Adviser
is  incorrect  in its  forecasts  of  market  values,  interest  rates and other
applicable factors, the investment performance of the Trust would be unfavorably
affected.

PORTFOLIO LENDING SECURITIES

The  Trust  may  seek  to  earn  income  by  lending  portfolio   securities  to
broker-dealers  or other  institutional  borrowers.  As with other extensions of
credit,  there  are  risks of delay in  recovery  or even  loss of rights in the
securities  loaned if the borrower of the securities fails  financially.  In the
judgment  of the  Adviser,  the loans will be made only to  organizations  whose
credit quality or claims paying ability is considered to be at least  investment
grade and when the  expected  returns,  net of  administrative  expenses and any
finders' fees,  justifies the attendant  risk.  Securities  loans  currently are
required to be secured  continuously  by  collateral in cash,  cash  equivalents
(such as  money  market  instruments)  or other  liquid  securities  held by the
custodian and  maintained in an amount at least equal to the market value of the
securities loaned. The financial  condition of the borrower will be monitored by
the Adviser on an ongoing  basis.  The value of the  securities  loaned will not
exceed 30% of the Trust's total assets.

REPURCHASE AGREEMENTS

The Trust may enter  into  repurchase  agreements  (the  purchase  of a security
coupled  with an  agreement  to resell at a higher  price)  with  respect to its
permitted  investments.  In the event of the  bankruptcy of the other party to a
repurchase agreement,  the Trust might experience delays in recovering its cash.
To the extent  that,  in the  meantime,  the value of the  securities  the Trust
purchased  may have  decreased,  the Trust could  experience a loss.  Repurchase
agreements which mature in more than seven days will be treated as illiquid. The
Trust's  repurchase  agreements  will provide  that the value of the  collateral
underlying  the  repurchase  agreement  will  always  be at  least  equal to the
repurchase  price,  including any accrued interest earned on the agreement,  and
will be marked to market daily.

                                       12

REVERSE REPURCHASE AGREEMENTS

The Trust may also enter into "reverse" repurchase  agreements which involve the
sale of  securities  held and an agreement to  repurchase  the  securities at an
agreed-upon  price, date, and interest payment.  Reverse  repurchase  agreements
involve  risks  similar to those  described  below under  "-USE OF LEVERAGE  AND
RELATED RISKS" and expose the Trust to the credit risk of the counterparty.

USE OF LEVERAGE AND RELATED RISKS

The Trust  utilizes  financial  leverage  on an ongoing  basis as an  investment
technique. It has authority to do so through borrowings,  including the issuance
of debt  securities,  or the  issuance  of  preferred  shares or  through  other
transactions,  such as reverse repurchase  agreements,  which have the effect of
financial leverage. The Trust generally will not utilize leverage if the Adviser
anticipates  that it would result in a lower return to common  shareholders  for
any significant  amount of time. The Trust also may borrow money up to 5% of its
total assets as a temporary  measure for  extraordinary  or emergency  purposes,
including the payment of dividends and the settlement of securities transactions
which otherwise might require untimely dispositions of Trust securities.

Leveraging  is a  speculative  technique  in that it will  increase  the Trust's
exposure to capital risk. Unless the income and appreciation,  if any, on assets
acquired with borrowed funds and offering  proceeds exceed the cost of borrowing
and issuing and maintaining Preferred Shares (and other Trust expenses), the use
of leverage  will  diminish the  investment  performance  of the Trust's  common
shares.  Leverage  creates  risks for holders of common  shares,  including  the
likelihood  of greater  volatility of net asset value and market price of common
shares.  Although  there  is a risk  that  fluctuations  in  interest  rates  on
borrowings and short-term debt or in the dividend rates on Preferred  Shares may
adversely  affect  the  return to the  holders  of common  shares,  the  Adviser
believes  that  this  should be  mitigated  when the Trust  uses  leverage  with
floating rate costs,  because the Trust's costs of leverage and its portfolio of
Senior Loans will  ordinarily  have similar  floating rates of interest.  If the
income from the securities  purchased with such funds is not sufficient to cover
the cost of leverage,  the return on the Trust will be less than if leverage had
not  been  used,  and  therefore  the  amount   available  for  distribution  to
shareholders as dividends and other  distributions will be reduced.  The Adviser
in its  best  judgment  nevertheless  may  determine  to  maintain  the  Trust's
leveraged   position  if  it  deems  such  action  to  be   appropriate  in  the
circumstances.  Successful use of a leveraging strategy depends on the Adviser's
ability to predict correctly  interest rates and market movements,  and there is
no assurance that a leveraging  strategy will be successful during any period in
which it is employed.

Under  the  Investment  Company  Act,  the  Trust  is  not  permitted  to  incur
indebtedness  unless  immediately  after such  incurrence the Trust has an asset
coverage  of at least 300% of the  aggregate  outstanding  principal  balance of
indebtedness  (i.e.,  such  indebtedness  may not exceed 33 1/3% of the  Trust's
total assets). Additionally, under the Investment Company Act, the Trust may not
declare any dividend or other distribution upon any class of its capital shares,
or purchase any such capital  shares,  unless the aggregate  indebtedness of the
Trust has, at the time of the  declaration of any such dividend or  distribution
or at the time of any such  purchase,  an asset  coverage of at least 300% after
deducting the amount of such dividend,  distribution,  or purchase price, as the
case may be. Under the  Investment  Company  Act, the Trust is not  permitted to
issue  preferred  shares  unless  immediately  after such issuance the net asset
value of the Trust's  portfolio is at least 200% of the liquidation value of the
outstanding preferred shares (i.e., such liquidation value may not exceed 50% of
the Trust's total  assets).  In addition,  the Trust is not permitted to declare
any cash dividend or other distribution on its common shares unless, at the time
of such declaration,  the net asset value of the Trust's  portfolio  (determined
after deducting the amount of such dividend or other  distribution)  is at least
200% of such liquidation value. Once Preferred Shares are issued, the Trust may,
to the extent possible, purchase or redeem Preferred Shares from time to time to
maintain  coverage of any Preferred  Shares of at least 200%,  which may require
the  Trust  to pay a  premium  in  addition  to the  liquidation  preference  of
Preferred  Shares.  If the  Trust's  asset  coverage  goes  below the 300% asset
coverage  required by the  Investment  Company  Act, or the 200% asset  coverage
required by the  Investment  Company Act regarding  dividends,  the Trust may be
required to sell a portion of its instruments when it is  disadvantageous  to do
so.

The Trust reserves the right at any time, if it believes that market  conditions
are  appropriate,  to increase its level of debt or other senior  securities  to
maintain  or  increase  the  Trust's  current  level of  leverage  to the extent
permitted  by the  Investment  Company Act and existing  agreements  between the
Trust and third parties. Because the fees paid to Eaton Vance will be calculated
on the  basis of the  Trust's  managed  assets,  the fees  will be  higher  when
leverage is utilized, giving the Adviser an incentive to utilize leverage.

                                       13

BORROWINGS

Most  borrowings  will result in the Trust being  subject to covenants in credit
agreements  relating to asset  coverages or portfolio  composition  or otherwise
more stringent  than those imposed by the Investment  Company Act. The rights of
lenders to the Trust to receive  interest on and  repayment  of principal of any
such  borrowings  will be senior to those of common and preferred  shareholders,
and the terms of any such borrowings may contain  provisions which limit certain
activities of the Trust, including the payment of dividends.  Further, the terms
of any such  borrowing  may and the  Investment  Company  Act  does (in  certain
circumstances)  grant to the lenders to the Trust  certain  voting rights in the
event of default in the payment of interest on or repayment of principal. In the
event that such  provisions  would  impair  the  Trust's  status as a  regulated
investment company, the Trust intends to repay the borrowings.

The Trust currently borrows under a credit facility  administered by a large New
York-based commercial bank. Up to $178 million can be borrowed under this credit
facility,  which will be reduced to $120 million after the Preferred  Shares are
issued.  Average  daily  borrowings  were  approximately  $134  million  for the
six-month period ended December 31, 2000. Outstanding borrowings on May 31, 2001
were approximately $146 million. The terms of the credit facility include: (i) a
final  maturity  of  November  9, 2001,  subject to annual  extension  by mutual
agreement;  (ii) with  respect  to each  draw  under the  facility,  a  variable
interest rate based upon LIBOR or an alternate rate;  (iii) payment by the Trust
of certain fees and expenses  including an underwriting fee, a commitment fee on
the average undrawn amount of the facility,  an ongoing  administration  fee and
the expenses of the lenders under the facility incurred in connection therewith;
and (iv) a pledge of the Trust's  assets.  The Trust would be required to prepay
outstanding  amounts  under the  facility or incur a penalty rate of interest in
the event of the occurrence of certain  events of default.  The Trust expects to
indemnify the lenders under the facility  against  liabilities they may incur in
connection with the facility. In addition the credit facility contains covenants
which, among other things, limit the Trust's ability to pay dividends in certain
circumstances, incur additional debt, change its fundamental investment policies
and engage in certain  transactions  including mergers and  consolidations,  and
require asset  coverage  ratios in addition to those  required by the Investment
Company Act. The obligation to make payments required by the credit facility are
senior  to  the  rights  of  Preferred  Shareholders  to  receive  dividends  or
liquidation  proceeds.  Such  credit  facility  may in the future be replaced or
refinanced by one or more credit facilities having substantially different terms
or by the issuance of preferred shares or debt securities.

RISKS OF INVESTING IN PREFERRED SHARES

The  issuance  of  Preferred   Shares   creates   special  risks  for  Preferred
Shareholders.

PAYMENT AND REDEMPTION RESTRICTIONS

Under the terms of its borrowing facility, the Trust is not permitted to declare
dividends or other  distributions,  including  dividends and distributions  with
respect to Preferred  Shares,  or purchase or call shares,  including  Preferred
Shares  unless (i) at the time thereof the Trust meets the asset  coverage  test
under the existing or any future borrowing  facility agreement and (ii) there is
no event of default under the borrowing facility.

LEVERAGE RISK

Borrowed funds  constitute a substantial lien and burden on the Preferred Shares
by reason of their prior  claim  against the income of the Trust and against the
total assets of the Trust in  liquidation.  In the event of a default  under the
borrowing  facility,  the lenders have the right to cause a  liquidation  of the
collateral  (i.e.,  sell Senior  Loans and other assets of the Trust) and if any
such default is not promptly  cured,  the lenders can control the liquidation as
well.

AUCTION RISK

You may not be able to sell your  Preferred  Shares at an auction if the auction
fails,  that is, if there are more Preferred  Shares offered for sale than there
are buyers for those shares.  Also,  if you place hold orders  (orders to retain
Preferred  Shares) at an auction  only at a  specified  rate,  and that bid rate
exceeds the rate set at the auction,  you will not retain your Preferred Shares.

                                       14

Finally, if you buy Preferred Shares or elect to retain Preferred Shares without
specifying  a rate  below  which you would not wish to  continue  to hold  those
Preferred  Shares,  and the auction sets a below-market  rate, you may receive a
lower rate of return on your Preferred Shares than the market rate.

SECONDARY MARKET RISK

Broker-dealers  may  maintain a secondary  trading  market in  Preferred  Shares
outside  of  auctions,  but may  discontinue  this  activity  any time.  You may
transfer Preferred Shares outside of auctions only to or through a broker-dealer
or such other persons who may be permitted by the Trust. If you try to sell your
Preferred  Shares  between  auctions,  you may not be able to sell any or all of
your  shares,  or you may not be able to sell  them  for  $25,000  per  share or
$25,000 per share plus  accumulated  dividends.  If the Trust has  designated  a
special  rate  period (a rate  period of more than 7 days),  changes in interest
rates  could  affect the price you would  receive if you sold your shares in the
secondary  market.  Broker-dealers  that maintain a secondary trading market for
Preferred Shares are not required to maintain this market,  and the Trust is not
required to redeem shares either if an auction or an attempted  secondary market
sale fails because of a lack of buyers. Preferred Shares are not registered on a
stock exchange or the Nasdaq stock market.  If you sell your Preferred Shares to
a broker-dealer  between auctions,  you may receive less than the price you paid
for them,  especially  when  market  interest  rates have  risen  since the last
auction and especially during a special rate period.

RATINGS AND ASSET COVERAGE RISK

While Moody's has issued a rating of "aaa" to the Preferred  Shares,  the rating
does not eliminate or  necessarily  mitigate the risks of investing in Preferred
Shares. A rating agency could downgrade the Preferred Shares, which may make the
shares less liquid at an auction or in the secondary  market and less  valuable.
If a rating agency  downgrades  the Preferred  Shares,  the dividend rate on the
Preferred Shares will be the applicable  maximum rate based on the credit rating
of the Preferred Shares.

Organization and management of the Trust

The Trust is an unincorporated  business trust established under the laws of The
Commonwealth  of  Massachusetts  by an Agreement and  Declaration of Trust dated
September  23, 1998 (the  "Declaration  of  Trust").  The  Declaration  of Trust
provides that the Trustees of the Trust may authorize separate classes of shares
of  beneficial  interest.  The Trustees have  authorized an unlimited  number of
common  shares  and  4,400  Preferred  Shares.  The  Declaration  of Trust  also
authorizes  the Trust to borrow  money or  otherwise  obtain  credit and in this
connection issue notes or other evidence of  indebtedness.  The Trust intends to
hold annual meetings of the  shareholders in compliance with the requirements of
the New York Stock Exchange.

BOARD OF TRUSTEES

The  management  of the  Trust,  including  general  supervision  of the  duties
performed by the Adviser under the Advisory Agreement,  is the responsibility of
the  Trust's  Board  of  Trustees  under  the  laws  of  The   Commonwealth   of
Massachusetts.

THE ADVISER

Eaton Vance acts as the Trust's investment adviser under an Investment  Advisory
Agreement ("Advisory  Agreement").  The Adviser's principal office is located at
The Eaton Vance Building,  255 State Street,  Boston, MA 02109. Eaton Vance, its
affiliates and  predecessor  companies have been managing  assets of individuals
and institutions since 1924 and of investment  companies since 1931. Eaton Vance
(or its  affiliates)  currently  serves as the investment  adviser to investment
companies and various individual and institutional  clients with combined assets
under  management of over $50 billion.  Eaton Vance is an indirect  wholly-owned
subsidiary of Eaton Vance Corp.,  a publicly held holding  company which through
its  subsidiaries  and affiliates  engages  primarily in investment  management,
administration and marketing activities.

Under the general supervision of the Trust's Board of Trustees, the Adviser will
carry out the  investment  and  reinvestment  of the assets of the  Trust,  will
furnish  continuously  an  investment  program with  respect to the Trust,  will
determine  which  securities  should be purchased,  sold or exchanged,  and will
implement such determinations.  The Adviser will furnish to the Trust investment

                                       15

advice  and  office  facilities,  equipment  and  personnel  for  servicing  the
investments of the Trust.  The Adviser will compensate all Trustees and officers
of the  Trust who are  members  of the  Adviser's  organization  and who  render
investment  services to the Trust,  and will also  compensate  all other Adviser
personnel who provide  research and investment  services to the Trust. In return
for these  services,  facilities  and payments,  the Trust has agreed to pay the
Adviser as  compensation  under the  Advisory  Agreement  a fee in the amount of
0.85% of the average weekly gross assets of the Trust. Gross assets of the Trust
shall be calculated by deducting accrued  liabilities of the Trust not including
the principal amount of any indebtedness constituting financial leverage.

Scott H. Page and Payson F.  Swaffield  have been  co-portfolio  managers of the
Trust since its inception,  and are responsible for day-to-day management of the
Trust's investments. Mr. Page has been an employee of Eaton Vance since 1989 and
Mr.  Swaffield  has been an employee of Eaton Vance since 1990.  Each has been a
Vice President of Eaton Vance since 1992 and has been involved in the management
of Senior Loans throughout his tenure at Eaton Vance.  They currently  co-manage
most Senior Loan assets at Eaton Vance.

The  Trust  has  engaged  Eaton  Vance  to  act as its  administrator  under  an
Administration   Agreement   (the   "Administration   Agreement").   Under   the
Administration  Agreement,  Eaton Vance is responsible for managing the business
affairs  of the  Trust,  subject  to the  supervision  of the  Trust's  Board of
Trustees. Eaton Vance will furnish to the Trust all office facilities, equipment
and  personnel  for  administering  the  affairs  of the  Trust.  Eaton  Vance's
administrative  services  include  recordkeeping,   preparation  and  filing  of
documents required to comply with federal and state securities laws, supervising
the activities of the Trust's custodian and transfer agent, providing assistance
in connection with the Trustees' and shareholders'  meetings,  providing service
in  connection  with any  repurchase  offers and other  administrative  services
necessary  to  conduct  the  Trust's  business.  In return  for these  services,
facilities and payments, the Trust pays Eaton Vance a fee in the amount of 0.25%
of the average weekly gross assets of the Trust.

COMMON SHARES

The Declaration of Trust permits the Trust to issue an unlimited  number of full
and fractional common shares of beneficial interest,  $0.01 par value per share.
Each common share  represents an equal  proportionate  interest in the assets of
the Trust with each other  common share in the Trust.  Holders of common  shares
are entitled to the payment of dividends  when,  as and if declared by the Board
of  Trustees.  Each whole  common share is entitled to one vote as to matters on
which it is entitled to vote pursuant to the terms of the  Declaration  of Trust
on file with the SEC. Upon liquidation of the Trust,  after paying or adequately
providing for the payment of all  liabilities  of the Trust and the  liquidation
preference with respect to any outstanding preferred shares, and upon receipt of
such releases,  indemnities and refunding  agreements as they deem necessary for
their protection,  the Trustees may distribute the remaining assets of the Trust
among the holders of the common shares.  The  Declaration of Trust provides that
shareholders are not liable for any liabilities of the Trust, requires inclusion
of a clause to that  effect  in every  agreement  entered  into by the Trust and
indemnifies shareholders against any such liability. Although shareholders of an
unincorporated  business trust established under  Massachusetts  law, in certain
limited circumstances,  may be held personally liable for the obligations of the
trust as though they were general partners, the provisions of the Declaration of
Trust  described in the foregoing  sentence make the likelihood of such personal
liability remote. The common shares have no preemptive rights.

Because common shares of closed-end  management  investment companies frequently
trade at a  discount  to their  net asset  values,  the  Board of  Trustees  has
determined that from time to time it may be in the interest of shareholders  for
the Trust to take  corrective  actions.  The Board of Trustees,  in consultation
with Eaton Vance,  will review at least annually the  possibility of open market
repurchases  and/or  tender  offers for the common shares and will consider such
factors as the market  price of the common  shares,  the net asset  value of the
common shares,  the liquidity of the assets of the Trust,  effect on the Trust's
expenses,  whether  such  transactions  would  impair  the  Trust's  status as a
regulated  investment  company or result in a failure to comply with  applicable
asset coverage  requirements,  general economic conditions and such other events
or  conditions  which may have a  material  effect  on the  Trust's  ability  to
consummate such transactions. There are no assurances that the Board of Trustees
will, in fact,  decide to undertake  either of these  actions or if  undertaken,
that such actions will result in the Trust's  common  shares  trading at a price
which is equal to or  approximates  their net asset value. In recognition of the
possibility  that the common shares might trade at a discount to net asset value
and that any such discount may not be in the interest of shareholders, the Board
of Trustees,  in  consultation  with Eaton  Vance,  from time to time may review
possible actions to reduce any such discount.

                                       16

The following table shows the amount of: (i) shares authorized, (ii) shares held
by the Trust for its own account and (iii) shares outstanding, for each class of
authorized securities of the Trust as of May 31, 2001.


                                                                               Amount held by the Trust
Title of class                                        Amount authorized           for its own account           Amount outstanding
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           
Common Shares...............................              Unlimited                       -0-                       35,823,660
Preferred Shares, Series A..................                2,200                         -0-                          -0-
Preferred Shares, Series B..................                2,200                         -0-                          -0-


SPECIAL PROVISIONS IN THE DECLARATION OF TRUST

ANTI-TAKEOVER PROVISIONS OF THE DECLARATION OF TRUST

The  Declaration  of Trust  includes  provisions  that  could have the effect of
limiting  the  ability of other  entities  or persons to acquire  control of the
Trust or to change the composition of its Board of Trustees,  and could have the
effect of depriving  common  shareholders of an opportunity to sell their shares
at a premium over  prevailing  market prices by  discouraging a third party from
seeking to obtain control of the Trust.  These provisions may have the effect of
discouraging attempts to acquire control of the Trust, which attempts could have
the effect of  increasing  the  expenses of the Trust and  interfering  with the
normal  operation  of the Trust.  The Board of  Trustees  is divided  into three
classes,  with  the  term of one  class  expiring  at  each  annual  meeting  of
shareholders.  At each  annual  meeting,  one class of  Trustees is elected to a
three-year  term. This provision could delay for up to two years the replacement
of a majority of the Board of  Trustees.  A Trustee  may be removed  from office
only for cause by a written  instrument signed by the remaining Trustees or by a
vote of the holders of at least  two-thirds  of the class of shares of the Trust
that elected such Trustee and is entitled to vote on the matter.

In addition, the Declaration of Trust requires the favorable vote of the holders
of at least 75% of the outstanding shares of each class of the Trust,  voting as
a  class,  then  entitled  to  vote  to  approve,  adopt  or  authorize  certain
transactions  with  5%-or-greater  holders  of  a  class  of  shares  and  their
associates,  unless the Board of Trustees  shall by  resolution  have approved a
memorandum  of  understanding  with such  holders,  in which case normal  voting
requirements  would  be  in  effect.   For  purposes  of  these  provisions,   a
5%-or-greater holder of a class of shares (a "Principal  Shareholder") refers to
any person who,  whether  directly or  indirectly  and whether alone or together
with  its  affiliates  and  associates,  beneficially  owns  5% or  more  of the
outstanding  shares  of any  class of  beneficial  interest  of the  Trust.  The
transactions subject to these special approval  requirements are: (i) the merger
or  consolidation  of the Trust or any  subsidiary of the Trust with or into any
Principal  Shareholder;  (ii) the issuance of any securities of the Trust to any
Principal  Shareholder for cash; (iii) the sale, lease or exchange of all or any
substantial part of the assets of the Trust to any Principal Shareholder (except
assets  having  an  aggregate  fair  market  value  of  less  than   $1,000,000,
aggregating  for the  purpose of such  computation  all assets  sold,  leased or
exchanged in any series of similar  transactions within a twelve-month  period);
or (iv) the sale, lease or exchange to the Trust or any subsidiary  thereof,  in
exchange for securities of the Trust, of any assets of any Principal Shareholder
(except  assets having an aggregate  fair market value of less than  $1,000,000,
aggregating  for the purposes of such  computation  all assets  sold,  leased or
exchanged in any series of similar transactions within a twelve-month period).

The Board of Trustees has determined  that  provisions with respect to the Board
and the 75% voting  requirements  described above, which voting requirements are
greater than the minimum  requirements under Massachusetts law or the Investment
Company  Act,  are in the best  interest of  shareholders  generally.  Reference
should  be made to the  Declaration  of Trust on file  with the SEC for the full
text of these provisions.

CONVERSION TO OPEN-END FUND

The Trust may be  converted  to an  open-end  investment  company at any time if
approved by the lesser of (i) two-thirds or more of the Trust's then outstanding
common shares and preferred  shares,  each voting separately as a class, or (ii)
more than 50% of the then outstanding common shares and preferred shares, voting
separately as a class if such  conversion is  recommended by at least 75% of the
Trustees then in office. If approved in the foregoing manner,  conversion of the
Trust  could not occur  until 90 days after the  shareholders'  meeting at which

                                       17

such  conversion  was  approved  and would also  require at least 30 days' prior
notice to all  shareholders.  The  current  use of  leverage  of the Trust would
prohibit it from  complying  with  regulations of the SEC applicable to open-end
investment companies.  Accordingly,  conversion likely would require significant
changes in the Trust's  investment  policies and  liquidation  of a  substantial
portion  of  its  illiquid  assets.  Conversion  of  the  Trust  to an  open-end
investment  company  also  would  require  the  redemption  of  any  outstanding
preferred  shares and could  require the  repayment of  borrowings,  which would
eliminate  the  leveraged  capital  structure  of the Trust with  respect to the
shares.  In the event of conversion,  the common shares would cease to be listed
on the New York Stock Exchange or other national  securities  exchange or market
system. The Board of Trustees believes,  however,  that the closed-end structure
is desirable,  given the Trust's  investment  objective and policies.  Investors
should assume,  therefore,  that it is unlikely that the Board of Trustees would
vote to convert the Trust to an open-end investment company.  Shareholders of an
open-end  investment  company may require the company to redeem  their shares at
any time  (except  in  certain  circumstances  as  authorized  by or  under  the
Investment  Company Act) at their net asset value, less such redemption  charge,
if any, as might be in effect at the time of a redemption.  The Trust expects to
pay all such  redemption  requests in cash,  but intends to reserve the right to
pay redemption requests in a combination of cash or securities.  If such partial
payment  in  securities  were  made,  investors  may  incur  brokerage  costs in
converting  such  securities to cash. If the Trust were converted to an open-end
fund,  it is likely that new common shares would be sold at net asset value plus
a sales load.

LITIGATION INVOLVING EATON VANCE

On May 25, 2001, a complaint  was filed in federal  district  court in Boston by
two shareholders of one account of EV Classic Senior  Floating-Rate Fund against
that fund, its advisers, trustees and certain officers. The complaint, framed as
a class  action,  alleges  that for  approximately  two years ending on March 2,
2000,  such fund's assets were  incorrectly  valued and certain matters were not
properly disclosed, in violation of the federal securities laws. Eaton Vance, EV
Classic  Senior  Floating-Rate  Fund,  and its  advisers,  trustees and officers
believe that the  complaint  is without  merit and will  vigorously  contest the
lawsuit.  Eaton  Vance does not  believe  such  litigation  will have a material
adverse affect on its ability to render services to the Trust.

Federal taxation

The following  federal tax discussion is only a summary of some of the important
tax considerations generally applicable to investments in the Trust. It is based
on the Internal Revenue Code of 1986, as amended (the "Code"), existing Treasury
regulations,  rulings published by the Internal Revenue Service (the "Service"),
and  other  applicable  authority,  as of the  date  of this  prospectus.  These
authorities are subject to change by legislative or administrative  action.  For
more detailed information  regarding tax considerations,  see the SAI. There may
be other tax  considerations  applicable to particular  investors.  In addition,
income earned through an investment in the Trust may be subject to state,  local
and foreign taxes.

FEDERAL TAXATION OF THE TRUST

The Trust  intends to elect and  qualify  each year for  taxation as a regulated
investment  company under  Subchapter M of the Code.  Provided that the Trust so
qualifies  and  distributes  at least 90% of the sum of its  investment  company
taxable  income  and  certain  other  income,  it will not be subject to Federal
income  tax on  income  distributed  timely to its  shareholders  in the form of
dividends or capital gain distributions.  The Trust intends to distribute all of
its investment income and net capital gain each year.

To satisfy the  distribution  requirement  applicable  to  regulated  investment
companies, amounts paid as dividends by the Trust to its shareholders, including
holders of its Preferred Shares, must qualify for the dividends-paid  deduction.
In certain  circumstances,  the Service could take the position  that  dividends
paid on the Preferred  Shares  constitute  preferential  dividends under Section
562(c) of the Code, and thus do not qualify for the dividends-paid deduction. If
this position  were upheld,  the Trust could be subject to tax and/or could fail
to qualify to be taxed as a regulated  investment  company.  The Trust believes,
however, that such a position, if asserted by the Service,  would be unlikely to
prevail if the issue were properly litigated.

If at any time the Trust does not meet applicable  asset coverage  requirements,
it may be required to suspend  distributions  until the requisite asset coverage
is restored.  Any such  suspension  may prevent the Trust from  qualifying  as a
regulated  investment  company or may cause the Trust to pay a 4% federal excise
tax (imposed on regulated  investment  companies  that fail to distribute  for a
given calendar year, generally,  at least 98% of their net investment income and
capital  gain net  income  plus  certain  other  amounts).  The  Trust  may call
Preferred Shares to maintain or restore the requisite asset coverage.

                                       18

If the Trust were to fail to  qualify as a  regulated  investment  company,  the
Trust  would  be  taxed  in the  same  manner  as an  ordinary  corporation  and
distributions  to its  shareholders  would  not be  deductible  by the  Trust in
computing its taxable income.  In addition,  the Trust's  distributions,  to the
extent  derived from the Trust's  current or  accumulated  earnings and profits,
would  constitute  dividends  (eligible  for the  corporate  dividends  received
deduction) that are taxable to shareholders  as ordinary  income,  even though a
portion  of  those  distributions  might  otherwise  have  been  treated  in the
shareholders' hands as long-term capital gains.

FEDERAL INCOME TAXATION OF HOLDERS OF PREFERRED SHARES

The Trust believes that the Preferred  Shares will constitute stock of the Trust
and distributions with respect to the Preferred Shares (other than distributions
in redemption  of Preferred  Shares that are treated as exchanges of stock under
Section  302(b)  of the Code)  thus  will  constitute  dividends  to the  extent
attributable to the Trust's current and accumulated  earnings and profits.  Such
dividends  generally will be taxable as ordinary income to holders and generally
will not qualify for the dividends received deduction available to corporations.
Distributions, if any, in excess of the Trust's current and accumulated earnings
and profits will first reduce the tax basis of the Preferred  Shares and,  after
such basis has been reduced to zero,  will  constitute  capital gains  (assuming
such Preferred  Shares are held as a capital  asset).  It is possible,  however,
that the Service might take a contrary position asserting, for example, that the
Preferred  Shares  constitute  debt of the Trust.  If this position were upheld,
distributions  by the Trust to  holders of  Preferred  Shares  would  constitute
interest,  whether or not they  exceeded the Trust's  earnings and profits,  and
would be taxed as ordinary  income.  The Trust  believes,  however,  that such a
position, if asserted by the Service,  would be unlikely to prevail if the issue
were properly litigated.

Distributions  of net capital gain that are  designated  by the Trust as capital
gain  dividends  will be  treated  as  long-term  capital  gains in the hands of
holders  regardless  of  the  holders'  respective  holding  periods  for  their
Preferred  Shares.  The Service  currently  takes the position  that a regulated
investment  company that has two or more classes of stock must  allocate to each
such class  proportionate  amounts of each type of its income  (such as ordinary
income and capital  gains).  Accordingly,  the Trust  intends to  designate  the
portion of its  distributions  as capital gain dividends in compliance with this
position.

The sale of Preferred  Shares will be a taxable  transaction  for federal income
tax purposes.  Selling holders of Preferred Shares will generally recognize gain
or  loss in an  amount  equal  to the  difference  between  their  basis  in the
Preferred Shares and the amount received in exchange therefor. If such Preferred
Shares are held as a capital asset, the gain or loss will generally be a capital
gain or loss.  Similarly,  a redemption  (including a redemption  resulting from
liquidation of the Trust),  if any, of Preferred  Shares by the Trust  generally
will  give rise to  capital  gain or loss if the  redemption  is  treated  as an
exchange of stock under Section 302(b) of the Code.  Generally,  a holder's gain
or loss will be a  long-term  gain or loss if the shares have been held for more
than one year. Any loss realized upon a taxable  disposition of Preferred Shares
held for six months or less will be treated as a long-term  capital  loss to the
extent of any capital gain dividends received by the shareholder with respect to
such shares.  Also,  any loss realized upon a taxable  disposition  of shares of
Preferred Shares may be disallowed if other Preferred Shares are acquired within
a 61-day  period  beginning 30 days before and ending 30 days after the date the
shares are disposed of. If  disallowed,  the loss will be reflected by an upward
adjustment to the basis of the shares acquired.

BACKUP WITHHOLDING

The Trust may be required to withhold, for U.S. federal income taxes, 31% of all
dividends and redemption  proceeds  payable to shareholders  who fail to provide
the Trust with their correct taxpayer  identification number or who fail to make
required  certifications,  or if the Trust or a shareholder has been notified by
the Service that they are subject to backup withholding.  Corporate shareholders
and  other  shareholders  specified  in the Code are  exempt  from  such  backup
withholding.  Backup  withholding is not an additional tax. Any amounts withheld
may be credited against the  shareholder's  U.S. federal income tax liability if
the appropriate information is provided to the Service.

OTHER TAXATION

Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to U.S.  withholding  tax on certain  distributions  at a rate of 30% or
such  lower  rate as may be  prescribed  by any  applicable  treaty.  (This U.S.
federal tax rate may  significantly  exceed the effective U.S.  federal tax that

                                       19

would apply if such  foreign  investors  held their share of the Trust's  assets
directly  rather  than  indirectly  through  their  investment  in  the  Trust.)
Investors  are advised to consult  their own tax  advisors  with  respect to the
application  to their own  circumstances  of the  above-described  general  U.S.
federal  taxation  rules and with  respect  to the state,  local or foreign  tax
consequences to them of an investment in Preferred Shares.

Description of Preferred Shares

GENERAL

The following is a brief description of the terms of the Preferred  Shares.  For
the complete terms of the Preferred Shares,  you may refer to the Trust's Second
Amended  By-Laws  ("By-laws")  filed with the SEC as an  exhibit to the  Trust's
registration statement.

Under the  Declaration  of Trust,  the Trust is authorized to issue an unlimited
number of preferred shares, in one or more series,  with rights as determined by
the Board of Trustees without the approval of common  shareholders.  The Trust's
By-laws currently  authorize the creation of up to 4,400 Preferred  Shares.  The
Preferred Shares will have a liquidation  preference of $25,000 per share,  plus
an amount equal to accumulated  dividends.  The Preferred Shares, when issued by
the Trust and sold, will be fully paid and non-assessable by the Trust, will not
by their terms be convertible  into or exchangeable  for shares of another class
and will have no preemptive rights.  Preferred Shares will not be subject to any
sinking  fund,  but  will be  subject  to  mandatory  redemption  under  certain
circumstances  described below.  Series A and Series B Preferred Shares have the
same rights and terms, except for their auction dates and related dividends.

DIVIDENDS AND DIVIDEND PERIODS

GENERAL

The following is a general  description  of dividends and rate periods.  See the
SAI for a more  detailed  discussion  of this topic.  The dividend  rate for the
initial rate period for  Preferred  Shares will be the rate set out on the cover
of this  prospectus.  For  subsequent  rate periods,  Preferred  Shares will pay
dividends based on a rate set at auction, normally held weekly, but the rate set
at auction will not exceed the maximum rate.  Rate periods  generally  will be 7
days, and a rate period  generally will begin on the first calendar day after an
auction. In most instances,  dividends are also paid weekly, on the business day
following the end of the rate period.  The Trust,  subject to some  limitations,
may  change  the  length of rate  periods,  designating  them as  "special  rate
periods." See "-DESIGNATION OF SPECIAL RATE PERIODS."

DIVIDEND PAYMENTS

Except as provided below,  the dividend  payment date will be the first business
day after the rate period  ends.  The  dividend  payment  date for special  rate
periods of more than 7 days will be set out in the notice  designating a special
rate period.  See  "-DESIGNATION  OF SPECIAL RATE  PERIODS" for a discussion  of
payment dates for a special rate period.

Dividends  on  Preferred  Shares will be paid on the  dividend  payment  date to
holders  of record as their  names  appear on the  Trust's  record  books on the
business day next  preceding  the dividend  payment  date.  If dividends  are in
arrears, they may be declared and paid at any time to holders of record as their
names  appear on the Trust's  record  books on such date,  not more than 15 days
before the payment date, as the Trust's Board of Trustees may determine.

The Depository  Trust Company,  in accordance  with its current  procedures,  is
expected to credit in same-day  funds on each  dividend  payment date  dividends
received from the Trust to the accounts of  broker-dealers  who act on behalf of
holders of  Preferred  Shares.  Such  broker-dealers,  in turn,  are expected to
distribute dividend payments to the person for whom they are acting as agent. If
a broker-dealer does not make dividends available to holders of Preferred Shares
in same-day funds,  these  shareholders  will not have funds available until the
next business day.

                                       20

DIVIDEND RATE SET AT AUCTION

Preferred  Shares pay  dividends  based on a rate set at  auction.  The  auction
usually is held weekly for each series of Preferred Shares, but may be held less
frequently.  The auction sets the dividend  rate,  and  Preferred  Shares may be
bought and sold at the  auction.  Bankers  Trust  Company,  the  auction  agent,
reviews orders from broker-dealers on behalf of existing  shareholders that wish
to sell,  hold at the auction  rate,  or hold only at a specified  rate,  and on
behalf of potential  shareholders that wish to buy Preferred Shares. The auction
agent then  determines  the lowest  dividend rate that will result in all of the
outstanding  Preferred Shares continuing to be held. The shares in this offering
will trade at auctions  beginning in the second  calendar week of July 2001. See
"The auction."

DETERMINATION OF DIVIDEND RATE

The Trust  computes  the  dividend per share by  multiplying  the dividend  rate
determined at the auction by a fraction,  the  numerator of which  normally is 7
and the  denominator of which  normally is 360. This rate is then  multiplied by
$25,000 to arrive at the dividend per share.  The  numerator may be different if
the rate period includes a holiday.

If an auction for any subsequent rate period of Preferred Shares is not held for
any reason other than as described below, the dividend rate on those shares will
be the maximum rate on the auction date for that subsequent rate period.

MAXIMUM RATE

The dividend rate that results from an auction for Preferred  Shares will not be
greater  than  the  "maximum  rate."  The  maximum  rate  means  the  applicable
percentage of the "AA" Financial Composite  Commercial Paper Rate on the date of
such auction  determined as set forth below based on the credit rating  assigned
to the Preferred Shares by Moody's:

                                                      Applicable
Moody's credit rating                                 percentage
--------------------------------------------------------------------------------
aa3 or Above                                             125%
a3 to a1                                                 160
baa3 to baa1                                             250
Below baa3                                               275

EFFECT OF FAILURE TO PAY DIVIDENDS IN A TIMELY MANNER

If the Trust fails to pay, in a timely manner, the auction agent the full amount
of any  dividend on any  Preferred  Shares,  but the Trust cures the failure and
pays any late charge before 12:00 noon New York City time on the third  business
day  following  the date the failure  occurred,  no auction will be held for the
Preferred Shares of that series for the first subsequent rate period thereafter,
and the  dividend  rate  for  the  Preferred  Shares  of that  series  for  that
subsequent rate period will be the maximum rate.

However, if the Trust does not effect a timely cure, no auction will be held for
the  Preferred  Shares of that  series  for the  first  subsequent  rate  period
thereafter (and for any rate period thereafter, to and including the rate period
during which the failure is cured and the late charge is paid), and the dividend
rate for the  Preferred  Shares of that series for each  subsequent  rate period
will be the default rate.

The  default  rate  means  300%  of  the  applicable  "AA"  Financial  Composite
Commercial  Paper Rate for a dividend  period of fewer than 270 days and 300% of
the applicable  Treasury  Index Rate for a dividend  period of 270 days or more.
Late charges are also calculated at the applicable default rate.

RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS

When the Trust has any Preferred Shares  outstanding,  the Trust may not pay any
dividend or distribution  (other than a dividend or distribution paid in shares,
or options,  warrants or rights to subscribe for or purchase,  common shares) in
respect of common shares or call for redemption,  redeem,  purchase or otherwise
acquire  for  consideration  any common  shares  (except by  conversion  into or

                                       21

exchange for shares of the Trust ranking  junior to the  Preferred  Shares as to
the payment of  dividends  and the  distribution  of assets  upon  liquidation),
unless: (i) it has paid all cumulative  dividends on the Preferred Shares;  (ii)
it  has  redeemed  any  Preferred  Shares  that  it  has  called  for  mandatory
redemption;  and (iii)  after  paying the  dividend,  the Trust  meets the asset
coverage requirements described under "Rating agency guidelines."

Except as set forth in the next sentence, no dividends shall be declared or paid
or set apart for payment on any series of shares of the Trust ranking, as to the
payment  of  dividends,  on a parity  with the  Preferred  Shares for any period
unless full cumulative dividends have been or contemporaneously are declared and
paid on the Preferred  Shares through their most recent  dividend  payment date.
When dividends are not paid in full upon the Preferred Shares through their most
recent  dividend  payment date or upon any other  series of shares  ranking on a
parity as to the payment of dividends with  Preferred  Shares through their most
recent respective  dividend payment dates, all dividends declared upon Preferred
Shares and any other such series of shares ranking on a parity as to the payment
of dividends with Preferred Shares shall be declared pro rata so that the amount
of dividends  declared  per share on  Preferred  Shares and such other series of
preferred  shares  shall in all cases  bear to each  other the same  ratio  that
accumulated dividends per share on the Preferred Shares and such other series of
preferred shares bear to each other.

DESIGNATION OF SPECIAL RATE PERIODS

The Trust may instruct  the auction  agent to hold  auctions  and pay  dividends
other than weekly (a "special rate  period").  The Trust may establish  dividend
periods up to and exceeding one year. The Trust may do this if, for example, the
Trust  expects  that  short-term  rates  might  increase  or  market  conditions
otherwise change, in an effort to optimize the effect of the Trust's leverage on
common shareholders. If the Trust elects to hold auctions and pay dividends less
frequently  than  weekly,  the  Preferred  Shares  will be subject to  increased
interest rate risk and liquidity risk,  including the risk that the market value
of the  Preferred  Shares will be less than their  liquidation  preference.  The
Trust  does  not  currently  expect  to hold  auctions  and pay  dividends  less
frequently  than weekly in the near  future.  If the Trust  designates a special
rate period,  changes in interest  rates could affect the price  received if the
shares were sold in the secondary market.

Before the Trust designates a special rate period:  (i) at least 7 business days
(or 2 business  days in the event the duration of the  dividend  period prior to
such special rate period is less than 8 days) and not more than 30 business days
before the first day of the proposed special rate period, the Trust must issue a
press  release  stating its  intention  to  designate a special  rate period and
inform the auction  agent of the proposed  special rate period by  telephonic or
other means and  confirm it in writing  promptly  thereafter  and (ii) the Trust
must inform the auction  agent of the proposed  special rate period by 3:00 p.m.
New York  City  time on the  second  business  day  before  the first day of the
proposed special rate period.

VOTING RIGHTS

Holders of Preferred Shares,  voting as a separate class, are entitled to elect:
(i) two  trustees of the Trust at all times and (ii) a majority of the  trustees
if at any time  dividends on the  Preferred  Shares shall be unpaid in an amount
equal to two years'  dividends  thereon,  and to continue  to be so  represented
until all dividends in arrears shall have been paid or otherwise provided for.

So long as any of the  Preferred  Shares  are  outstanding,  the Trust will not,
without the  affirmative  vote of the  holders of a majority of the  outstanding
Preferred  Shares:  (i) institute any proceedings to be adjudicated  bankrupt or
insolvent, or consent to the institution of bankruptcy or insolvency proceedings
against it, or file a petition seeking or consenting to reorganization or relief
under any applicable  federal or state law relating to bankruptcy or insolvency,
or consent to the  appointment  of a receiver,  liquidator,  assignee,  trustee,
sequestrator  (or other similar  official) of the Trust or a substantial part of
its property, or make any assignment for the benefit of creditors, or, except as
may be required by  applicable  law,  admit in writing its  inability to pay its
debts  generally as they become due or take any corporate  action in furtherance
of any such action;  (ii) create,  incur or suffer to exist, or agree to create,
incur or suffer to exist,  or consent to cause or permit in the future (upon the
happening of a contingency or otherwise)  the creation,  incurrence or existence
of any material lien,  mortgage,  pledge,  charge,  security interest,  security
agreement,  conditional  sale or trust receipt or other material  encumbrance of

                                       22

any kind  upon any of the  Trust's  assets  as a whole,  except  (A)  liens  the
validity of which are being contested in good faith by appropriate  proceedings,
(B)  liens  for  taxes  that are not then  due and  payable  or that can be paid
thereafter without penalty,  (C) liens,  pledges,  charges,  security interests,
security  agreements  or  other  encumbrances  arising  in  connection  with any
indebtedness  senior to the  Preferred  Shares,  (D)  liens,  pledges,  charges,
security  interests,  security  agreements  or  other  encumbrances  arising  in
connection  with any  indebtedness  permitted  under  clause (iii) below and (E)
liens to secure payment for services  rendered  including,  without  limitation,
services  rendered by the Trust's paying agent and the auction  agent;  or (iii)
create, authorize, issue, incur or suffer to exist any indebtedness for borrowed
money or any direct or indirect  guarantee  of such  indebtedness  for  borrowed
money or any direct or indirect guarantee of such indebtedness, except the Trust
may borrow as may be permitted by the Trust's investment restrictions (including
the  utilization  of a  credit  facility  for  investment  leverage);  provided,
however,  that  transfers  of assets by the Trust  subject to an  obligation  to
repurchase shall not be deemed to be indebtedness for purposes of this provision
to the extent that after any such transaction the Trust has eligible assets with
an  aggregate  discounted  value at least equal to the  Preferred  Shares  Basic
Maintenance Amount (as defined below) as of the immediately  preceding valuation
date.

In  addition,  the  affirmative  vote  of  the  holders  of a  majority  of  the
outstanding   Preferred  Shares  shall  be  required  to  approve  any  plan  of
reorganization  (as such term is used in the  Investment  Company Act) adversely
affecting such shares or any action  requiring a vote of security holders of the
Trust under Section 13(a) of the Investment  Company Act. In the event a vote of
holders of Preferred  Shares is required  pursuant to the  provisions of Section
13(a) of the  Investment  Company  Act,  the Trust  shall,  not  later  than ten
business  days prior to the date on which  such vote is to be taken,  notify the
rating  agency  that such vote is to be taken and the nature of the action  with
respect to which such vote is to be taken and shall, not later than ten business
days after the date on which such vote is taken, notify the rating agency of the
results of such vote.

The affirmative  vote of the holders of a majority of the outstanding  Preferred
Shares of any series, voting separately from any other series, shall be required
with respect to any matter that  materially  and  adversely  affects the rights,
preferences,  or powers of that series in a manner  different from that of other
series or classes of the Trust's  shares of capital  stock.  For purposes of the
foregoing,  no matter shall be deemed to adversely affect any right,  preference
or power unless such matter:  (i) alters or abolishes any preferential  right of
such  series;  (ii)  creates,  alters  or  abolishes  any  right in  respect  of
redemption  of such series;  or (iii)  creates or alters (other than to abolish)
any  restriction on transfer  applicable to such series.  The vote of holders of
any series  described  in this  paragraph  will in each case be in addition to a
separate  vote of the requisite  percentage  of common  shares and/or  preferred
shares necessary to authorize the action in question.

REDEMPTION

MANDATORY REDEMPTION

In the  event the Trust  does not  timely  cure a failure  to:  (i)  maintain  a
discounted   value  of  its  portfolio  equal  to  the  Preferred  Shares  Basic
Maintenance  Amount,  (ii) maintain the Investment  Company Act Preferred Shares
Asset Coverage,  or (iii) file a required  certificate related to asset coverage
on time,  the  Preferred  Shares  will be subject to  mandatory  redemption  (or
"call")  out of  funds  legally  available  therefore  in  accordance  with  the
Declaration of Trust,  the  Certificate  and  applicable  law, at the redemption
price of  $25,000  per share  plus an amount  equal to  accumulated  but  unpaid
dividends thereon (whether or not earned or declared) to (but not including) the
date fixed for redemption.  Any such redemption will be limited to the number of
Preferred  Shares  necessary  to restore the  required  discounted  value or the
Investment Company Act Preferred Shares Asset Coverage, as the case may be.

In  determining  the  number  of  Preferred  Shares  required  to be  called  in
accordance  with the  foregoing,  the Trust will  allocate  the number of shares
required to be called to satisfy the Preferred Shares Basic  Maintenance  Amount
or the Investment  Company Act Preferred Shares Asset Coverage,  as the case may
be, pro rata among the Preferred Shares and other preferred shares of the Trust,
subject to redemption or retirement.  See "Rating agency  guidelines."  If fewer
than all outstanding shares of any series are, as a result, to be redeemed,  the
Trust may  redeem  such  shares by lot or other  method  that it deems  fair and
equitable.

OPTIONAL REDEMPTION

To the extent permitted under the Investment  Company Act and Massachusetts law,
the Trust at its option may call  Preferred  Shares having a dividend  period of
one year or less, in whole or in part, on the business day after the last day of
such  dividend  period upon not less than 15 calendar  days and not more than 40
calendar days prior  notice.  The optional  redemption  price per share shall be
$25,000 per share,  plus an amount  equal to  accumulated  but unpaid  dividends
thereon  (whether or not earned or declared)  to the date fixed for  redemption.
Preferred  Shares having a dividend  period of more than one year are redeemable

                                       23

at the  option  of the  Trust,  in  whole  or in  part,  prior to the end of the
relevant dividend period, subject to any specific redemption  provisions,  which
may include the payment of redemption  premiums to the extent required under any
applicable  specific  redemption  provisions.  The Trust  shall not  effect  any
optional  redemption  unless after giving effect thereto that: (i) the Trust has
available  certain  deposit  securities  with maturity or tender dates not later
than the day preceding  the  applicable  redemption  date and having a value not
less than the  amount  (including  any  applicable  premium)  due to  holders of
Preferred  Shares by reason of the  redemption of Preferred  Shares on such date
fixed for the redemption  and (ii) the Trust would have eligible  assets with an
aggregate  discounted  value  at  least  equal  to the  Preferred  Shares  Basic
Maintenance Amount.

Notwithstanding  the foregoing,  no Preferred Shares may be called at the option
of the Trust  unless  all  dividends  in arrears  on the  outstanding  Preferred
Shares,  including  all  outstanding  preferred  shares,  have been or are being
contemporaneously  paid or set aside for payment;  provided,  however,  that the
foregoing shall not prevent the purchase or acquisition of outstanding preferred
shares pursuant to the successful  completion of an otherwise lawful purchase or
exchange  offer made on the same terms to holders of all  outstanding  preferred
shares.

LIQUIDATION

Subject to the rights of senior creditors and holders of any series ranking on a
parity with  Preferred  Shares with respect to the  distribution  of assets upon
liquidation  of the Trust,  whether  voluntary  or  involuntary,  the holders of
Preferred Shares then outstanding will be entitled to receive and to be paid out
of the  assets of the Trust  available  for  distribution  to its  shareholders,
before any payment or distribution shall be made on the common shares, an amount
equal to the  liquidation  preference  with respect to such shares  ($25,000 per
share),  plus an amount equal to all dividends thereon (whether or not earned or
declared)   accumulated   but  unpaid  to  and   including  the  date  of  final
distribution.  After the payment to the holders of the  Preferred  Shares of the
full preferential  amounts provided for as described herein,  the holders of the
Preferred  Shares as such shall  have no right or claim to any of the  remaining
assets of the Trust.

Neither  the  consolidation  nor  merger  of the  Trust  with or into any  other
corporation or corporations,  nor the sale,  lease,  exchange or transfer by the
Trust of all or substantially all of its property and assets, shall be deemed to
be a liquidation, dissolution or winding up of the Trust for the purposes of the
foregoing paragraph.

The auction

SUMMARY OF AUCTION PROCEDURES

The following is a brief summary of the auction  procedures.  They are described
in more  detail  in the  SAI.  The  auction  determines  the  dividend  rate for
Preferred  Shares,  but the  dividend  rate will not be higher  than the maximum
rate. See "Description of Preferred  Shares-DIVIDENDS AND DIVIDEND PERIODS." You
may buy, sell or hold Preferred Shares in the auction.

If you  own  Preferred  Shares,  you  may  instruct,  orally  or in  writing,  a
broker-dealer  to enter an order in the auction.  Existing  holders of Preferred
Shares can enter three kinds of orders regarding their Preferred  Shares:  sell,
bid and hold.

>>   If you enter a sell order,  you  indicate  that you want to sell  Preferred
     Shares at $25,000 per share, no matter what the next rate period's dividend
     rate will be.

>>   If you enter a bid (or "hold at a rate") order,  you indicate that you want
     to sell  Preferred  Shares only if the next rate period's  dividend rate is
     less than the rate you specify.

>>   If you enter a hold order,  you  indicate  that you want to continue to own
     Preferred  Shares, no matter what the next rate period's dividend rate will
     be.

You may enter  different types of orders for your Preferred  Shares,  as well as
orders for additional Preferred Shares. All orders must be for whole shares. All
orders you submit are irrevocable. There are a fixed number of Preferred Shares,
and the dividend rate likely will vary from auction to auction  depending on the
number of  bidders,  the number of shares the bidders  seek to buy,  and general
economic  conditions  including  current  interest  rates.  If you own Preferred

                                       24

Shares and submit a bid higher than the maximum  rate,  your bid will be treated
as a sell order.  If you do not enter an order,  the  broker-dealer  will assume
that you want to continue to hold Preferred Shares, but if you fail to submit an
order for an auction with a special rate period,  the  broker-dealer  will treat
your failure to submit a bid as a sell order.

If you do not currently own Preferred  Shares,  or want to buy more shares,  you
may instruct a broker-dealer to enter a bid order to buy shares in an auction at
$25,000 per share at or above a specified dividend rate. If your bid specifies a
rate higher than the maximum rate, your order will not be accepted.

Broker-dealers   will  submit  orders  from  existing  and  potential  Preferred
Shareholders to the auction agent.  Neither the Trust nor the auction agent will
be  responsible  for a  broker-dealer's  failure to submit  orders from existing
shareholders and potential  shareholders.  A  broker-dealer's  failure to submit
orders for Preferred  Shares held by it or its customers  will be treated in the
same manner as a shareholder's  failure to submit an order to the broker-dealer.
A  broker-dealer  may submit  orders to the  auction  agent for its own  account
provided it is not an affiliate of the Trust.

The auction  agent,  after each auction for Preferred  Shares,  will pay to each
broker-dealer,  from funds provided by the Trust, a service charge at the annual
rate of 1/4 of 1% in the case of any auction immediately preceding a rate period
of  less  than  one  year,  or a  percentage  agreed  to by the  Trust  and  the
broker-dealers,  in the case of any auction immediately  preceding a rate period
of one year or longer,  of the purchase price of Preferred  Shares placed by the
broker-dealers at the auction.

If the number of  Preferred  Shares  subject to bid orders with a dividend  rate
equal to or lower than the maximum rate for  Preferred  Shares is at least equal
to the number of Preferred Shares subject to sell orders, then the dividend rate
for the next rate period will be the lowest rate  submitted  which,  taking into
account  that rate and all lower  rates  submitted  in order from  existing  and
potential  shareholders,  would  result in existing and  potential  shareholders
owning all the Preferred Shares available for purchase in the auction.

If the number of  Preferred  Shares  subject to bid orders with a dividend  rate
equal to or lower than the maximum  rate for  Preferred  Shares is less than the
number  of  Preferred  Shares  subject  to sell  orders,  then  the  auction  is
considered  to be a failed  auction,  and the dividend  rate will be the maximum
rate. In that event,  existing  shareholders that have submitted sell orders (or
are treated as having  submitted sell orders) may not be able to sell any or all
of the shares for which they submitted sell orders.

The auction agent will not accept a bid above the maximum  rate.  The purpose of
the maximum rate is to place an upper limit on dividends of Preferred Shares and
in so  doing  to  help  protect  the  earnings  available  to pay  common  share
dividends,  and to serve as the dividend  rate in the event of a failed  auction
(that is, an auction where there are more Preferred Shares offered for sale than
there are buyers for those shares).

If broker-dealers submit or are deemed to submit hold orders for all outstanding
Preferred Shares, that is considered an "all hold" auction and the dividend rate
for the next rate period  will be the all hold rate.  The "all hold rate" is 80%
of the "AA" Financial  Composite  Commercial Paper Rate (the interest equivalent
of rates  applicable  to  "AA"-rated  securities  for  time  periods  that  vary
depending on the dividend period).

The auction  procedures  include a pro rata  allocation of Preferred  Shares for
purchase and sale. This allocation process may result in an existing shareholder
continuing to hold or selling, or a potential  shareholder buying,  fewer shares
than  the  number  of  Preferred   Shares  in  its  order.   If  this   happens,
broker-dealers  will be required to make appropriate pro rata allocations  among
their customers.

Settlement  of purchases  and sales will be made on the next business day (which
also is a dividend  payment date) after the auction date through The  Depository
Trust  Company.   Purchasers  will  pay  for  their  Preferred   Shares  through
broker-dealers  in  same-day  funds  to The  Depository  Trust  Company  against
delivery to the  broker-dealers.  The Depository Trust Company will make payment
to the sellers'  broker-dealers in accordance with its normal procedures,  which
require  broker-dealers  to make  payment  against  delivery in same-day  funds.
Throughout this prospectus,  a business day is a day on which the New York Stock
Exchange is open for  trading,  and which is neither a Saturday,  Sunday nor any
other day on which banks in New York,  New York are  authorized  or obligated by
law to close.

The first auction for Series A Preferred  Shares will be held on  _____________,
2001, the business day preceding the dividend  payment date for the initial rate
period.  Thereafter,  except during special rate periods,  auctions for Series A
Preferred  Shares will normally be held every Tuesday,  and each subsequent rate
period  for Series A  Preferred  Shares  will  normally  begin on the  following
Wednesday.

                                       25

The first auction for Series B Preferred Shares will be held on  ______________,
2001, the business day preceding the dividend  payment date for the initial rate
period.  Thereafter,  except during special rate periods,  auctions for Series B
Preferred Shares will normally be held every Thursday,  and each subsequent rate
period  for Series B  Preferred  Shares  will  normally  begin on the  following
Friday.

SECONDARY MARKET TRADING AND TRANSFER OF PREFERRED SHARES

Broker-dealers  (including  the  Underwriters)  may, but are not  obligated,  to
maintain a secondary  trading  market in Preferred  Shares  outside of auctions.
There can be no assurance that a secondary  trading market for Preferred  Shares
will develop or, if it does develop,  that it will provide owners with liquidity
of investment. The Preferred Shares will not be registered on any stock exchange
or on the Nasdaq stock  market.  Investors who purchase  Preferred  Shares in an
auction for a special rate period  should note that because the dividend rate on
such shares will be fixed for the length of that rate period,  the value of such
shares may  fluctuate in response to the changes in interest  rates,  and may be
more or less than their  original  cost if sold on the open market in advance of
the next auction thereof, depending on market conditions.

An existing  shareholder may sell,  transfer,  or otherwise dispose of Preferred
Shares only in whole shares and only: (i) pursuant to a bid or sell order placed
with the auction  agent in  accordance  with the auction  procedures,  (ii) to a
broker-dealer  or (iii) to such other  persons as may be permitted by the Trust;
provided,  however, that: (a) a sale, transfer or other disposition of Preferred
Shares from a customer of a  broker-dealer  who is listed on the records of that
broker-dealer  as the  holder of such  shares to that  broker-dealer  or another
customer  of that  broker-dealer  shall not be deemed to be a sale,  transfer or
other  disposition for purposes of the foregoing if such  broker-dealer  remains
the  existing  shareholder  of the shares so sold,  transferred  or  disposed of
immediately after such sale,  transfer or disposition and (b) in the case of all
transfers other than pursuant to auctions,  the  broker-dealer (or other person,
if  permitted  by the  Trust) to whom such  transfer  is made  shall  advise the
auction agent of such transfer.

Rating agency guidelines

The Trust is required under Moody's  guidelines to maintain assets having in the
aggregate  a  discounted  value at least  equal to the  Preferred  Shares  Basic
Maintenance  Amount.  To the extent any  particular  portfolio  holding does not
satisfy the  guidelines,  all or a portion of such  holding's  value will not be
included in the  calculation  of discounted  value (as defined by Moody's at the
time of the  calculation).  The guidelines  also impose certain  diversification
requirements  on the Trust's  overall  portfolio.  The  "Preferred  Shares Basic
Maintenance Amount" is the sum of: (i) the aggregate  liquidation  preference of
the Preferred  Shares then  outstanding,  (ii) the total principal of any senior
debt (plus accrued and projected  dividends),  (iii) certain Trust  expenses and
(iv) certain other current liabilities.

The Trust is also required under Moody's guidelines to maintain, with respect to
the  Preferred  Shares,  as of the last  business day of each month in which any
Preferred Shares are  outstanding,  asset coverage of at least 200% with respect
to senior  securities  which are  shares of  beneficial  interest  in the Trust,
including  the  Preferred  Shares (or such other  asset  coverage  as may in the
future be specified in or under the Investment  Company Act as the minimum asset
coverage  for  senior  securities  which are shares of a  closed-end  investment
company as a condition of declaring  dividends on its common  shares) ("1940 Act
Preferred  Shares  Asset  Coverage").  Based on the  composition  of the Trust's
portfolio  and market  conditions  as of May 31,  2001,  the 1940 Act  Preferred
Shares  Asset  Coverage  with  respect to the  Preferred  Shares,  assuming  the
issuance of all Preferred  Shares  offered hereby and the use of the proceeds as
intended, would be computed as follows:

   Value of Trust assets less liabilities not
     constituting senior securities                        $544 million
                                               =                          = 247%
   -----------------------------------------            -----------------
   Senior securities representing indebtedness plus
     liquidation value of the Preferred Shares             $220 million

In the  event the Trust  does not  timely  cure a  failure  to  maintain:  (i) a
discounted   value  of  its  portfolio  equal  to  the  Preferred  Shares  Basic
Maintenance Amount or (ii) the 1940 Act Preferred Shares Asset Coverage, in each
case in accordance  with the  requirements of the rating agency or agencies then
rating the  Preferred  Shares,  the Trust will be required  to redeem  Preferred
Shares as described above under "Description of Preferred Shares - REDEMPTION."

                                       26

The Trust may, but is not required to, adopt any modifications to the guidelines
that may  hereafter  be  established  by  Moody's.  Failure  to  adopt  any such
modifications, however, may result in a change in the ratings described above or
a withdrawal of ratings altogether.  In addition,  any rating agency providing a
rating for the  Preferred  Shares may, at any time,  change or withdraw any such
rating. The Board of Trustees may, without shareholder  approval,  amend, alter,
add to or repeal any or all of the definitions and related provisions which have
been adopted by the Trust pursuant to the rating agency  guidelines in the event
the Trust receives written  confirmation from Moody's that any such change would
not impair the rating then assigned.

As  described  by Moody's,  a preferred  share  rating is an  assessment  of the
capacity and  willingness of an issuer to pay preferred share  obligations.  The
ratings on the Preferred  Shares are not  recommendations  to purchase,  hold or
sell Preferred Shares, inasmuch as the ratings do not comment as to market price
or suitability for a particular investor. The rating agency guidelines described
above also do not address the likelihood that an owner of Preferred  Shares will
be able to sell such shares in an auction or  otherwise.  The rating is based on
current  information  furnished  to  Moody's by the Trust and the  Adviser,  and
information obtained from other sources. The rating may be changed, suspended or
withdrawn as a result of changes in, or the unavailability of, such information.

The rating agency  guidelines will apply to the Preferred Shares only so long as
Moody's is rating such shares. The Trust will pay fees to Moody's for rating the
Preferred Shares.

Underwriting

The Underwriters  named below,  acting through UBS Warburg LLC, 299 Park Avenue,
New York, New York, as lead manager, and Salomon Smith Barney Inc., A.G. Edwards
& Sons, Inc. and Prudential  Securities  Incorporated as their  representatives,
have severally  agreed,  subject to the terms and conditions of the Underwriting
Agreement  with the Trust and the  Adviser,  to purchase the number of Preferred
Shares  opposite  their  respective  names.  The  Underwriters  are committed to
purchase all of such Preferred Shares if any are purchased.

                                                          NUMBER OF
UNDERWRITER                                            PREFERRED SHARES
--------------------------------------------------------------------------------
UBS Warburg LLC......................................
Salomon Smith Barney Inc. ...........................
A.G. Edwards & Sons, Inc. ...........................
Prudential Securities Incorporated...................
         Total.......................................

The Trust has agreed to pay a commission to the Underwriters in the amount up to
$ per Preferred Share ( % of the public offering price per Preferred Share). The
Underwriters  have  advised  the Trust  that they may pay up to $ per  Preferred
Share to selected  dealers who sell the  Preferred  Shares and that such dealers
may  reallow a  concession  of up to $ per  Preferrred  Share to  certain  other
dealers who sell Preferred Shares.

The Underwriters  will act as a broker-dealers  and will be entitled to fees for
services as  broker-dealers as set forth under "The  auction-SUMMARY  OF AUCTION
PROCEDURES."

The Trust and Eaton Vance have each agreed to indemnify the  Underwriters for or
to  contribute  to the  losses  arising  out of certain  liabilities,  including
liabilities under the Securities Act of 1933, as amended.

The Trust anticipates that the Underwriters may from time to time act as brokers
or dealers in connection with the execution of its portfolio  transactions after
they have ceased to be Underwriters  and, subject to certain  restrictions,  may
act as such brokers while they are Underwriters.

As described below under  "Shareholder  servicing agent,  custodian and transfer
agent," UBS Warburg LLC will provide shareholder  services to the Trust pursuant
to a  Shareholder  Servicing  Agreement  with Eaton  Vance.  Eaton  Vance pays a
monthly  fee, on an annual  basis,  equal to 0.10% of the average  weekly  gross
assets of the Trust for such services.

                                       27

Shareholder servicing agent, custodian and transfer agent

Pursuant  to a  Shareholder  Servicing  Agreement  between  UBS Warburg LLC (the
"Shareholder  Servicing Agent") and Eaton Vance, the Shareholder Servicing Agent
will (i)  undertake  to make public  information  pertaining  to the Trust on an
ongoing  basis and to  communicate  to investors and  prospective  investors the
Trust's features and benefits  (including periodic seminars or conference calls,
responses to questions  from current or  prospective  shareholders  and specific
shareholder  contact where  appropriate);  (ii) make  available to investors and
prospective investors market price, net asset value, yield and other information
regarding the Trust,  if reasonably  obtainable,  for the purpose of maintaining
the visibility of the Trust in the investor  community;  (iii) at the request of
Eaton Vance,  provide certain economic research and statistical  information and
reports,  if  reasonably  obtainable,  on behalf of the Trust,  and consult with
representatives and the Board of Trustees of the Trust in connection  therewith,
which  information  and reports shall  include:  (a)  statistical  and financial
market  information  with  respect to the  Trust's  market  performance  and (b)
comparative  information  regarding  the Trust and other  closed-end  management
investment  companies  with  respect  to:  (1)  the net  asset  value  of  their
respective  shares,  (2) the respective market performance of the Trust and such
other companies and (3) other relevant performance  indicators;  and (iv) at the
request of Eaton  Vance,  provide  information  to and consult with the Board of
Trustees  with  respect to  applicable  modifications  to  dividend  policies or
capital  structure,  repositioning or restructuring of the Trust,  conversion of
the Trust to an open-end  investment company,  liquidation or merger;  provided,
however,  that  under  the terms of the  Shareholder  Servicing  Agreement,  the
Shareholder Servicing Agent is not obligated to render any opinions,  valuations
or  recommendations  of any kind or to perform any such  similar  services.  For
these  services,  Eaton Vance will pay the  Shareholder  Servicing  Agent a fee,
equal on an annual basis,  to 0.10% of the Trust's  average weekly gross assets,
payable in arrears at the end of each calendar  quarter.  Under the terms of the
Shareholder  Servicing  Agreement,  the Shareholder  Servicing Agent is relieved
from  liability  to Eaton  Vance for any act or  omission  in the  course of its
performance  under the Shareholder  Servicing  Agreement in the absence of gross
negligence  or  willful  misconduct  by the  Shareholder  Servicing  Agent.  The
Shareholder  Servicing  Agreement will continue for an initial term of two years
and thereafter for successive one-year periods unless terminated by either party
upon 60 days written notice.

Investors Bank & Trust Company ("IBT"),  200 Clarendon Street,  Boston, MA 02116
is the custodian of the Trust and will maintain  custody of the  securities  and
cash of the Trust.  IBT  maintains the Trust's  general  ledger and computes net
asset value per share at least weekly. IBT also attends to details in connection
with the sale,  exchange,  substitution,  transfer and other  dealings  with the
Trust's  investments,  and receives and disburses all funds. IBT also assists in
preparation  of shareholder  reports and the  electronic  filing of such reports
with the SEC.

PFPC, Inc., P.O. Box 5123,  Providence,  RI 02940-9653 is the transfer agent and
common share dividend disbursing agent of the Trust.

Legal matters

It is expected  that certain  legal  matters in  connection  with the  Preferred
Shares  offered  hereby  will be  passed  upon for the  Trust by  Kirkpatrick  &
Lockhart LLP, and for the Underwriters by Skadden,  Arps, Slate,  Meagher & Flom
(Illinois) and its affiliated entities.

Experts

The  financial  statements of the Trust as of December 31, 2000 included in this
prospectus and the registration statement have been audited by Deloitte & Touche
LLP,  independent  auditors,  as set forth in their report and  incorporated  by
reference  into the SAI is included in reliance  upon such report given upon the
authority of such firm as experts in accounting and auditing.

Additional information

This  prospectus and the SAI do not contain all of the  information set forth in
the  registration  statement that the Trust has filed with the SEC. The complete
registration  statement  may be  obtained  from the SEC upon  payment of the fee
prescribed by its rules and regulations.  The SAI can be obtained without charge
by calling 1-800-225-6265.

                                       28

Statements  contained in this  prospectus  as to the contents of any contract or
other documents referred to are not necessarily complete, and, in each instance,
reference  is made to the copy of such  contract or other  document  filed as an
exhibit to the  registration  statement of which this  prospectus  forms a part,
each such statement being qualified in all respects by such reference.

Table of contents for the SAI


Additional Investment Information and Restrictions.............................1
Trustees and Officers..........................................................6
Investment Advisory and Other Services.........................................9
Determination of Net Asset Value..............................................10
Portfolio Trading.............................................................11
Taxes.........................................................................12
Other Information.............................................................13
Auditors......................................................................14
Financial Statements..........................................................14
Appendix A:  Additional Information Concerning the
   Auctions for Preferred Shares.............................................A-1
Appendix B:  Glossary........................................................B-1
Appendix C:  Ratings of Corporate Bonds......................................C-1

                                       29
















                               [EATON VANCE LOGO]


PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
                                           SUBJECT TO COMPLETION - JUNE 19, 2001


                                                          STATEMENT OF
                                                          ADDITIONAL INFORMATION

                                                          ________________, 2001


                         EATON VANCE SENIOR INCOME TRUST

                            THE EATON VANCE BUILDING
                                255 STATE STREET
                           BOSTON, MASSACHUSETTS 02109
                                 1-800-225-6265


--------------------------------------------------------------------------------

                                TABLE OF CONTENTS

                                                                            PAGE
Additional Investment Information and Restrictions.............................1
Trustees and Officers..........................................................6
Investment Advisory and Other Services.........................................9
Determination of Net Asset Value..............................................10
Portfolio Trading.............................................................11
Taxes.........................................................................12
Other Information.............................................................13
Auditors......................................................................14
Financial Statements..........................................................14
Appendix A:  Additional Information Concerning the Auctions
   for Preferred Shares......................................................A-1
Appendix B:  Glossary........................................................B-1
Appendix C: Ratings of Corporate Bonds.......................................C-1

--------------------------------------------------------------------------------

THIS  STATEMENT OF  ADDITIONAL  INFORMATION  ("SAI") IS NOT A PROSPECTUS  AND IS
AUTHORIZED  FOR  DISTRIBUTION  TO  PROSPECTIVE  INVESTORS  ONLY IF  PRECEDED  OR
ACCOMPANIED  BY THE  PROSPECTUS OF EATON VANCE SENIOR INCOME TRUST (THE "TRUST")
DATED   ___________,   2001,  AS  SUPPLEMENTED  FROM  TIME  TO  TIME,  WHICH  IS
INCORPORATED  HEREIN BY REFERENCE.  THIS SAI SHOULD BE READ IN CONJUNCTION  WITH
SUCH  PROSPECTUS,  A COPY OF WHICH MAY BE OBTAINED  WITHOUT CHARGE BY CONTACTING
YOUR FINANCIAL INTERMEDIARY OR CALLING THE TRUST AT 1-800-225-6265.

THE INFORMATION IN THIS SAI IS NOT COMPLETE AND MAY BE CHANGED.  WE MAY NOT SELL
THESE SECURITIES UNTIL THE REGISTRATION  STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE  COMMISSION ("SEC") IS EFFECTIVE.  THIS SAI, WHICH IS NOT A PROSPECTUS,
IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.


     Capitalized  terms  used in this  SAI and not  otherwise  defined  have the
meanings  given them in the Trust's  prospectus or the Glossary.  The Investment
Company Act of 1940 is referred to herein as the "1940 Act."

               ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS

     STRUCTURE  OF  SENIOR  LOANS.  A  Senior  Loan  is  typically   originated,
negotiated  and  structured  by a U.S.  or foreign  commercial  bank,  insurance
company,  finance  company or other  financial  institution  (the "Agent") for a
group of loan investors ("Loan Investors").  The Agent typically administers and
enforces the Senior Loan on behalf of the other Loan Investors in the syndicate.
In  addition,  an  institution,  typically  but not always the Agent,  holds any
collateral on behalf of the Loan Investors.

     Senior Loans include senior secured floating rate loans and institutionally
traded senior secured floating rate debt  obligations  issued by an asset-backed
pool, and interests  therein.  Loan interests  generally take the form of direct
interests  acquired during a primary  distribution and may also take the form of
participation  interests  in,  assignments  of, or  novations  of a Senior  Loan
acquired in secondary markets.  Such loan interests may be acquired from U.S. or
foreign  commercial  banks,  insurance  companies,  finance  companies  or other
financial institutions who have made loans or are members of a lending syndicate
or from other investors in loan interests.

     The Trust typically  purchases  "Assignments"  from the Agent or other Loan
Investors.  The purchase of an Assignment  typically  succeeds to all the rights
and  obligations  under the Loan  Agreement of the  assigning  Loan Investor and
becomes  a loan  investor  under the Loan  Agreement  with the same  rights  and
obligations  as the  assigning  party.  Assignments  may,  however,  be arranged
through  private   negotiations   between  potential   assignees  and  potential
assignors,  and the rights  and  obligations  acquired  by the  purchaser  of an
Assignment  may  differ  from,  and be  more  limited  than,  those  held by the
assigning Loan Investor.

     The Trust also may invest in "Participations".  Participations by the Trust
in a Loan Investor's portion of a Senior Loan typically will result in the Trust
having a contractual  relationship  only with such Loan  Investor,  not with the
Borrower.  As a result,  the Trust may have the  right to  receive  payments  of
principal,  interest  and any fees to which it is  entitled  only  from the Loan
Investor selling the  Participation  and only upon receipt by such Loan Investor
of  such   payments   from  the  Borrower.   In   connection   with   purchasing
Participations,  the Trust generally will have no right to enforce compliance by
the Borrower with the terms of the loan  agreement,  nor any rights with respect
to any funds  acquired  by other Loan  Investors  through  set-off  against  the
Borrower and the Trust may not directly  benefit from the collateral  supporting
the Senior Loan in which it has purchased the  Participation.  As a result,  the
Trust may assume  the credit  risk of both the  Borrower  and the Loan  Investor
selling the  Participation.  In the event of the insolvency of the Loan Investor
selling a Participation,  the Trust may be treated as a general creditor of such
Loan  Investor.  The selling Loan  Investors and other  persons  interpositioned
between such Loan  Investors  and the Trust with respect to such  Participations
will likely conduct their principal business activities in the banking,  finance
and financial  services  industries.  Persons  engaged in such industries may be
more susceptible to, among other things, fluctuations in interest rates, changes
in the Federal Open Market Committee's monetary policy, governmental regulations
concerning such industries and concerning capital raising  activities  generally
and fluctuations in the financial markets generally.

     The Trust will only acquire Participations if the Loan Investor selling the
Participation,  and any other persons  interpositioned between the Trust and the
Loan  Investor,  at the  time of  investment  has  outstanding  debt or  deposit
obligations  rated  investment  grade (BBB or A-3 or higher by Standard & Poor's
Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors Service, Inc.
("Moody's") or comparably rated by another  nationally  recognized rating agency
(each a "Rating  Agency"))  or  determined  by the  investment  adviser to be of

                                       1

comparable   quality.   Securities   rated  Baa  by  Moody's  have   speculative
characteristics.   Similarly,   the  Trust  will   purchase  an   Assignment  or
Participation or act as a Loan Investor with respect to a syndicated Senior Loan
only where the Agent with respect to such Senior Loan at the time of  investment
has outstanding debt or deposit obligations rated investment grade or determined
by the investment adviser to be of comparable quality.  Long-term debt rated BBB
by S&P is regarded by S&P as having adequate  capacity to pay interest and repay
principal and debt rated Baa by Moody's is regarded by Moody's as a medium grade
obligation,  i.e., it is neither highly protected nor poorly secured. Commercial
paper rated A-3 by S&P  indicates  that S&P believes  such  obligations  exhibit
adequate protection  parameters but that adverse economic conditions or changing
circumstances  are more likely to lead to a weakened  capacity of the obligor to
meet its financial  commitment on the obligation and issues of commercial  paper
rated P-3 by Moody's are considered by Moody's to have an acceptable ability for
repayment   of  senior   short-term   obligations.   The   effect  of   industry
characteristics and market compositions may be more pronounced.

     LENDING  FEES. In the process of buying,  selling and holding  Senior Loans
the Trust may  receive  and/or pay certain  fees.  These fees are in addition to
interest  payments  received and may include  facility  fees,  commitment  fees,
commissions  and prepayment  penalty fees.  When the Trust buys a Senior Loan it
may receive a facility fee and when it sells a Senior Loan it may pay a facility
fee. On an ongoing  basis,  the Trust may receive a commitment  fee based on the
undrawn  portion of the  underlying  line of credit portion of a Senior Loan. In
certain  circumstances,  the Trust may receive a prepayment penalty fee upon the
prepayment of a Senior Loan by a Borrower.  Other fees received by the Trust may
include covenant waiver fees and covenant modification fees.

     BORROWER  COVENANTS.  A  Borrower  must  comply  with  various  restrictive
covenants  contained in a loan agreement or note purchase  agreement between the
Borrower  and the  holders  of the  Senior  Loan (the  "Loan  Agreement").  Such
covenants,  in addition  to  requiring  the  scheduled  payment of interest  and
principal, may include restrictions on dividend payments and other distributions
to stockholders,  provisions requiring the Borrower to maintain specific minimum
financial ratios, and limits on total debt. In addition,  the Loan Agreement may
contain a covenant  requiring  the  Borrower  to prepay the Senior Loan with any
free cash  flow.  Free cash flow is  generally  defined  as net cash flow  after
scheduled debt service payments and permitted capital expenditures, and includes
the  proceeds  from asset  dispositions  or sales of  securities.  A breach of a
covenant which is not waived by the Agent, or by the Loan Investors directly, as
the case may be, is normally an event of  acceleration;  i.e., the Agent, or the
Loan  Investors  directly,  as the  case  may be,  has  the  right  to call  the
outstanding  Senior Loan. The typical practice of an Agent or a Loan Investor in
relying exclusively or primarily on reports from the Borrower may involve a risk
of  fraud  by the  Borrower.  In the  case of a  Senior  Loan  in the  form of a
Participation,  the agreement  between the buyer and seller may limit the rights
of the  holder  to vote  on  certain  changes  which  may be  made  to the  Loan
Agreement,  such as waiving a breach of a covenant.  However,  the holder of the
Participation  will,  in almost  all  cases,  have the right to vote on  certain
fundamental  issues  such as  changes in  principal  amount,  payment  dates and
interest rate.

     ADMINISTRATION OF LOANS. In a typical Senior Loan the Agent administers the
terms of the Loan Agreement.  In such cases,  the Agent is normally  responsible
for the collection of principal and interest  payments from the Borrower and the
apportionment  of these  payments  to the credit of all  institutions  which are
parties to the Loan  Agreement.  The Trust will generally rely upon the Agent or
an  intermediate  participant to receive and forward to the Trust its portion of
the  principal  and interest  payments on the Senior Loan.  Furthermore,  unless
under the terms of a  Participation  Agreement  the  Trust has  direct  recourse
against the Borrower,  the Trust will rely on the Agent and the other members of
the lending  syndicate to use appropriate  credit remedies against the Borrower.
The Agent is typically  responsible  for  monitoring  compliance  with covenants
contained in the Loan Agreement based upon reports prepared by the Borrower. The
seller of the Senior Loan usually  does,  but is often not  obligated to, notify
holders of Senior Loans of any failures of compliance. The Agent may monitor the
value of the  collateral  and,  if the  value of the  collateral  declines,  may
accelerate  the Senior  Loan,  may give the Borrower an  opportunity  to provide
additional  collateral  or may seek  other  protection  for the  benefit  of the
participants  in the Senior Loan.  The Agent is  compensated by the Borrower for
providing  these  services under a Loan  Agreement,  and such  compensation  may
include special fees paid upon structuring and funding the Senior Loan and other
fees paid on a  continuing  basis.  With  respect to Senior  Loans for which the
Agent does not perform such administrative and enforcement functions,  the Trust
will  perform  such tasks on its own  behalf,  although a  collateral  bank will
typically  hold any  collateral  on  behalf  of the  Trust  and the  other  Loan
Investors pursuant to the applicable Loan Agreement.

                                       2

     A financial institution's appointment as Agent may usually be terminated in
the event that it fails to observe  the  requisite  standard  of care or becomes
insolvent,  enters Federal Deposit Insurance Corporation ("FDIC")  receivership,
or, if not FDIC insured, enters into bankruptcy  proceedings.  A successor Agent
would generally be appointed to replace the terminated Agent, and assets held by
the Agent under the Loan Agreement  should remain available to holders of Senior
Loans.  However,  if assets  held by the Agent for the benefit of the Trust were
determined  to be subject to the claims of the Agent's  general  creditors,  the
Trust  might incur  certain  costs and delays in  realizing  payment on a Senior
Loan, or suffer a loss of principal  and/or  interest.  In situations  involving
other intermediate participants similar risks may arise.

     PREPAYMENTS.  Senior  Loans  usually  require,  in  addition  to  scheduled
payments of interest and principal,  the prepayment of the Senior Loan from free
cash flow, as defined above.  The degree to which Borrowers prepay Senior Loans,
whether as a contractual  requirement or at their  election,  may be affected by
general  business  conditions,  the  financial  condition  of the  Borrower  and
competitive conditions among Loan Investors,  among others. As such, prepayments
cannot be predicted with accuracy. Upon a prepayment, either in part or in full,
the actual  outstanding  debt on which the Trust derives interest income will be
reduced.  However,  the Trust may receive both a prepayment penalty fee from the
prepaying  Borrower  and a facility  fee upon the  purchase of a new Senior Loan
with the proceeds from the prepayment of the former.  Prepayments generally will
not materially affect the Trust's  performance  because the Trust should be able
to reinvest  prepayments  in other  Senior  Loans that have similar or identical
yields and because  receipt of such fees may mitigate any adverse  impact on the
Trust's yield.

     OTHER  INFORMATION  REGARDING SENIOR LOANS.  From time to time, the Adviser
and its affiliates may borrow money from various banks in connection  with their
business  activities.  Such banks may also sell Senior  Loans to or acquire them
from the Trust or may be intermediate  participants with respect to Senior Loans
in which the Trust owns interests.  Such banks may also act as Agents for Senior
Loans held by the Trust.

     The Trust may  acquire  interests  in Senior  Loans  which are  designed to
provide  temporary  or  "bridge"  financing  to a Borrower  pending  the sale of
identified  assets or the  arrangement of longer-term  loans or the issuance and
sale of debt obligations. The Trust may also invest in Senior Loans of Borrowers
who have obtained  bridge loans from other  parties.  A Borrower's use of bridge
loans  involves  a risk that the  Borrower  may be  unable  to locate  permanent
financing to replace the bridge loan, which may impair the Borrower's  perceived
creditworthiness.

     To the  extent  that  collateral  consists  of the stock of the  Borrower's
subsidiaries  or other  affiliates,  the Trust  will be subject to the risk that
this  stock  will  decline  in value.  Such a  decline,  whether  as a result of
bankruptcy  proceedings  or  otherwise,  could  cause  the  Senior  Loan  to  be
undercollateralized  or unsecured.  In most credit agreements there is no formal
requirement to pledge additional  collateral.  In addition, the Trust may invest
in Senior Loans  guaranteed by, or fully secured by assets of,  shareholders  or
owners,  even if the Senior Loans are not otherwise  collateralized by assets of
the Borrower;  provided,  however, that such guarantees are fully secured. There
may be  temporary  periods  when the  principal  asset held by a Borrower is the
stock of a related company,  which may not legally be pledged to secure a Senior
Loan.  On occasions  when such stock cannot be pledged,  the Senior Loan will be
temporarily  unsecured  until the stock can be  pledged or is  exchanged  for or
replaced by other assets, which will be pledged as security for the Senior Loan.
However,  the Borrower's  ability to dispose of such  securities,  other than in
connection  with such pledge or  replacement,  will be strictly  limited for the
protection of the holders of Senior  Loans.  During any such period in which the
Senior Loan is temporarily  unsecured,  such Senior Loans will not be treated as
secured  Senior Loans for purposes of the Trust's  policy of investing in normal
market conditions at least 80% of its total assets in such secured Senior Loans.

     If a Borrower  becomes  involved  in  bankruptcy  proceedings,  a court may
invalidate the Trust's  security  interest in the loan collateral or subordinate
the Trust's  rights  under the Senior Loan to the  interests  of the  Borrower's
unsecured  creditors.  Such action by a court could be based, for example,  on a

                                       3

"fraudulent  conveyance"  claim to the effect that the  Borrower did not receive
fair  consideration for granting the security interest in the loan collateral to
the  Trust.  For  Senior  Loans  made  in  connection  with a  highly  leveraged
transaction,  consideration  for  granting  a  security  interest  may be deemed
inadequate  if the  proceeds  of the Loan were not  received  or retained by the
Borrower,  but were instead paid to other persons (such as  shareholders  of the
Borrower) in an amount which left the Borrower  insolvent or without  sufficient
working capital.  There are also other events,  such as the failure to perfect a
security interest due to faulty documentation or faulty official filings,  which
could  lead  to the  invalidation  of the  Trust's  security  interest  in  loan
collateral.  If the Trust's security  interest in loan collateral is invalidated
or the Senior Loan is  subordinated to other debt of a Borrower in bankruptcy or
other  proceedings,  it is unlikely  that the Trust would be able to recover the
full amount of the principal and interest due on the Loan.

     INTEREST RATE SWAPS. The Trust may enter into interest rate swaps on either
an asset-based or liability-based  basis, depending on whether it is hedging its
assets or its liabilities. For example, if the Trust holds a Senior Loan with an
interest  rate  that is reset  only  once  each  year,  it may swap the right to
receive  interest at this fixed rate for the right to receive interest at a rate
that is reset daily.  Such a swap position  would offset changes in the value of
the Senior Loan  because of  subsequent  changes in interest  rates.  This would
protect  the Trust from a decline in the value of the Senior  Loan due to rising
interest  rates,  but would also  limit its  ability  to  benefit  from  falling
interest rates.

     The Trust will enter into  interest  rate swaps only on a net basis,  i.e.,
the two payment streams are netted out, with the Trust  receiving or paying,  as
the case may be,  only the net  amount of the two  payments.  Inasmuch  as these
transactions  are  entered  into  for good  faith  hedging  and risk  management
purposes and because a segregated account will be used, the Trust will not treat
them as being subject to the Trust's borrowing  restrictions.  The net amount of
the excess,  if any,  of the  Trust's  obligations  over its  entitlements  with
respect  to each  interest  rate swap will be  accrued  on a daily  basis and an
amount of cash or liquid securities having an aggregate net asset value at least
equal to the accrued  excess will be maintained  in a segregated  account by the
Trust's  custodian.  The Trust will not enter into any interest rate swap unless
the credit quality of the unsecured senior debt or the claims-paying  ability of
the other party thereto is considered to be investment grade by the Adviser.  If
there is a default by the other party to such a transaction, the Trust will have
contractual remedies pursuant to the agreements related to the transaction.  The
swap market has grown substantially in recent years with a large number of banks
and investment  banking firms acting both as principals and as agents  utilizing
standardized  swap  documentation.  As a  result,  the swap  market  has  become
relatively  liquid in comparison with the markets for other similar  instruments
which are traded in the interbank market.

     Interest  rate swaps do not involve the  delivery  of  securities  or other
underlying  assets or principal.  Accordingly,  the risk of loss with respect to
interest  rate swaps is limited to the net amount of interest  payments that the
Trust is contractually  obligated to make or receive.  Since interest rate swaps
are individually  negotiated,  the Trust expects to achieve an acceptable degree
of  correlation  between its rights to receive  interest on Senior Loans and its
rights and  obligations  to receive and pay interest  pursuant to interest  rate
swaps.

     CREDIT DERIVATIVES. The Trust may engage in credit derivative transactions.
Default price risk  derivatives are linked to the price of reference  securities
or loans after a default by the issuer or borrower, respectively.  Market spread
derivatives are based on the risk that changes in market factors, such as credit
spreads,  can cause a decline in the value of a security,  loan or index.  There
are three basic transactional forms for credit derivatives:  swaps,  options and
structured  instruments.  The use of credit  derivatives is a highly specialized
activity which involves  strategies  and risks  different from those  associated
with ordinary  portfolio security  transactions.  If the Adviser is incorrect in
its forecasts of default risks, market spreads or other applicable factors,  the
investment  performance of the Trust would diminish  compared with what it would
have been if these  techniques were not used.  Moreover,  even if the Adviser is
correct in its forecasts,  there is a risk that a credit derivative position may
correlate  imperfectly  with the price of the asset or liability  being  hedged.
Credit  derivative  transaction  exposure  will be  limited  to 10% of the total
assets of the Trust.

                                       4

     INVESTMENT RESTRICTIONS. The following investment restrictions of the Trust
are designated as fundamental policies and as such cannot be changed without the
approval  of the  holders  of a  majority  of  the  Trust's  outstanding  voting
securities,  which as used in this Statement of Additional Information means the
lesser of (a) 67% of the shares of the Trust present or  represented by proxy at
a  meeting  if the  holders  of more  than  50% of the  shares  are  present  or
represented at the meeting or (b) more than 50% of the shares of the Trust. As a
matter of fundamental policy the Trust may not:

          (1) Borrow money, except as permitted by the 1940 Act;

          (2) Issue senior  securities,  as defined in the 1940 Act,  other than
     (i)  Preferred  Shares which  immediately  after  issuance  will have asset
     coverage  of at least  200%,  (ii)  indebtedness  which  immediately  after
     issuance will have asset coverage of at least 300%, or (iii) the borrowings
     permitted by investment restriction (1) above;

          (3)  Purchase  securities  on margin  (but the Trust may  obtain  such
     short-term  credits as may be necessary  for the clearance of purchases and
     sales of securities).  The purchase of loan interests,  securities or other
     investment assets with the proceeds of a permitted  borrowing or securities
     offering will not be deemed to be the purchase of securities on margin;

          (4) Underwrite  securities issued by other persons,  except insofar as
     it may technically be deemed to be an underwriter  under the Securities Act
     of 1933 in selling or disposing of a portfolio investment;

          (5) Make loans to other persons, except by (a) the acquisition of loan
     interests,  debt  securities  and other  obligations  in which the Trust is
     authorized  to invest  in  accordance  with its  investment  objective  and
     policies,  (b) entering  into  repurchase  agreements,  and (c) lending its
     portfolio securities;

          (6) Purchase any  security  if, as a result of such  purchase,  25% or
     more of the Trust's total assets (taken at current value) would be invested
     in the  securities of borrowers and other  issuers  having their  principal
     business  activities  in the same industry (the  electric,  gas,  water and
     telephone utility  industries,  commercial banks,  thrift  institutions and
     finance  companies being treated as separate  industries for the purpose of
     this  restriction);  provided that there is no  limitation  with respect to
     obligations  issued  or  guaranteed  by the U.S.  Government  or any of its
     agencies or instrumentalities;

          (7)  Purchase or sell real  estate,  although it may purchase and sell
     securities  which are secured by interests in real estate and securities of
     issuers which invest or deal in real estate. The Trust reserves the freedom
     of  action  to hold and to sell  real  estate  acquired  as a result of the
     ownership of securities; or

          (8)  Purchase  or  sell  physical  commodities  or  contracts  for the
     purchase  or sale of  physical  commodities.  Physical  commodities  do not
     include futures contracts with respect to securities, securities indices or
     other financial instruments.

     For the purpose of investment  restriction (6), the Trust will consider all
relevant  factors  in  determining  who is the  issuer  of  the  loan  interest,
including:  the credit  quality of the  Borrower,  the amount and quality of the
collateral,  the  terms of the Loan  Agreement  and  other  relevant  agreements
(including  inter-creditor  agreements),  the degree to which the credit of such
interpositioned  person was deemed  material to the  decision  to  purchase  the
Senior Loan,  the interest rate  environment,  and general  economic  conditions
applicable to the Borrower and such interpositioned person.

                                       5

     The Trust has adopted the following nonfundamental  investment policy which
may be changed by the Trustees without approval of the Trust's shareholders.  As
a matter  of  nonfundamental  policy,  the  Trust  may not make  short  sales of
securities  or  maintain  a short  position,  unless at all  times  when a short
position  is open it  either  owns an equal  amount of such  securities  or owns
securities  convertible  into or  exchangeable,  without  payment of any further
consideration,  for securities of the same issue as, and equal in amount to, the
securities sold short.

     Notwithstanding the investment policies and restrictions of the Trust, upon
Board of Trustee  approval the Trust may invest its investable  assets in one or
more other management  investment  companies to the extent permitted by the 1940
Act and rules thereunder.

     Whenever an investment  policy or investment  restriction  set forth in the
prospectus  or this SAI  states  a  maximum  percentage  of  assets  that may be
invested in any security or other asset or describes a policy regarding  quality
standards,   such   percentage   limitation  or  standard  shall  be  determined
immediately after and as a result of the Trust's acquisition of such security or
asset.  Accordingly,  any later increase or decrease  resulting from a change in
values,  assets or other  circumstances  will not compel the Trust to dispose of
such  security or other asset.  Notwithstanding  the  foregoing,  the Trust must
always be in compliance with the borrowing policies set forth above.

                              TRUSTEES AND OFFICERS

     The Trustees of the Trust are  responsible  for the overall  management and
supervision  of the Trust's  affairs.  Trustees and  officers are listed  below.
Except as indicated,  each individual has held the office shown or other offices
in the same  company  for the last  five  years.  Unless  otherwise  noted,  the
business  address of each Trustee and officer is The Eaton Vance  Building,  255
State Street,  Boston,  Massachusetts  02109. Those Trustees who are "interested
persons" of the Trust as defined in the 1940 Act by virtue of their  affiliation
with Eaton Vance, BMR, EVC or EV, are indicated by an asterisk(*).

JESSICA M. BIBLIOWICZ (41), TRUSTEE* (1)
President  and  Chief  Executive  Officer  of  National  Financial  Partners  (a
financial services company) (since April,  1999).  President and Chief Operating
Officer of John A Levin & Co. (a registered  investment  advisor) (July, 1997 to
April,  1999) and a Director  of Baker,  Fentress  & Company  which owns John A.
Levin & Co. (July, 1997 to April,  1999).  Formerly  Executive Vice President of
Smith  Barney  Mutual Funds (from July,  1994 to June,  1997).  Elected  Trustee
February  22, 1999.  Trustee of various  investment  companies  managed by Eaton
Vance or BMR since October 30, 1998.
Address:  787 Seventh Avenue, New York, New York  10019

DONALD R. DWIGHT (70), TRUSTEE (1)(4)
President of Dwight  Partners,  Inc. (a corporate  relations and  communications
company). Trustee/Director of the Royce Funds (mutual funds). Trustee of various
investment companies managed by Eaton Vance or BMR.
Address:  Clover Mill Lane, Lyme, New Hampshire 03768

JAMES B. HAWKES (59), PRESIDENT AND TRUSTEE* (1)
Chairman,  President and Chief Executive  Officer of Eaton Vance,  BMR and their
corporate  parent and trustee (EVC and EV);  Director of EVC and EV. Trustee and
officer of various investment companies managed by Eaton Vance or BMR.

SAMUEL L. HAYES, III (66), TRUSTEE (2)(4)
Jacob H. Schiff Professor of Investment  Banking  Emeritus,  Harvard  University
Graduate School of Business  Administration.  Trustee of the Kobrick  Investment
Trust (mutual funds).  Trustee of various investment  companies managed by Eaton
Vance or BMR.
Address:  345 Nahatan Road, Westwood, Massachusetts 02090

                                       6

NORTON H. REAMER (65), TRUSTEE (2)
Chairman and Chief Operating Officer,  Hellman,  Jordan Management Co., Inc. (an
investment  management  company) (since  November,  2000) and President,  Jordan
Simmons  Capital LLC (manager of energy related  investments)  (since  November,
2000).  President,  Unicorn  Corporation  (an investment and financial  advisory
services  company)  (since  September,  2000).  Formerly  Chairman of the Board,
United Asset  Management  Corporation (a holding  company  owning  institutional
investment  management  firms) and Chairman,  President and Director,  UAM Funds
(mutual funds).  Trustee of various investment  companies managed by Eaton Vance
or BMR.
Address:  One International Place, Boston, Massachusetts  02110

LYNN A. STOUT (43), TRUSTEE (3)
Professor of Law, Georgetown University Law Center. Elected Trustee February 22,
1999.  Trustee of various  investment  companies  managed by Eaton  Vance or BMR
since October 30, 1998.
Address:  600 New Jersey Avenue, NW, Washington, DC  20001

JACK L. TREYNOR (71), TRUSTEE (3)
Investment  Adviser  and  Consultant.  Trustee of various  investment  companies
managed by Eaton Vance or BMR.
Address:  504 Via Almar, Palos Verdes Estates, California 90274

SCOTT H. PAGE (41), VICE PRESIDENT
Vice President of Eaton Vance and BMR. Officer of various  investment  companies
managed by Eaton Vance or BMR.

PAYSON F. SWAFFIELD (44), VICE PRESIDENT
Vice President of Eaton Vance and BMR. Officer of various  investment  companies
managed by Eaton Vance or BMR.

MICHAEL W. WEILHEIMER (40), VICE PRESIDENT
Vice President of Eaton Vance and BMR. Officer of various  investment  companies
managed by Eaton Vance or BMR.

JAMES L. O'CONNOR (56), TREASURER
Vice President of Eaton Vance and BMR. Officer of various  investment  companies
managed by Eaton Vance or BMR.

ALAN R. DYNNER (60), SECRETARY
Vice  President,  Secretary and Chief Legal Officer of Eaton Vance,  BMR, EV and
EVC.  Prior to joining  Eaton Vance on November 1, 1996, he was a Partner of the
law firm of Kirkpatrick & Lockhart LLP, New York and Washington, D.C. Officer of
various investment companies managed by Eaton Vance or BMR.

JANET E. SANDERS (65), ASSISTANT TREASURER AND ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various  investment  companies
managed by Eaton Vance or BMR.

A. JOHN MURPHY (38), ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various  investment  companies
managed by Eaton Vance or BMR.

ERIC G. WOODBURY (43), ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various  investment  companies
managed by Eaton Vance or BMR.

----------
(1)  Class I Trustee whose term expires in 2002.
(2)  Class II Trustee whose term expires in 2003.
(3)  Class III Trustee whose term expires in 2001.
(4)  Trustee  to be  elected  exclusively  by  holders  of  Preferred  Shares as
     described in the prospectus.

                                       7

     The Nominating Committee of the Board of Trustees of the Trust is comprised
of the Trustees who are not  "interested  persons" as that term is defined under
the 1940 Act  ("noninterested  Trustees").  The purpose of the  Committee  is to
recommend to the Board nominees for the position of noninterested Trustee and to
assure that at least a majority of the Board of Trustees is independent of Eaton
Vance or its affiliates.

     Messrs. Hayes (Chairman),  Dwight,  Reamer and Ms. Stout are members of the
Special  Committee  of the Board of  Trustees  of the Trust.  The purpose of the
Special Committee is to consider,  evaluate and make recommendations to the full
Board of Trustees  concerning  (i) all  contractual  arrangements  with  service
providers to the Trust, including investment advisory, administrative,  transfer
agency,  custodial and fund accounting and distribution  services,  and (ii) all
other matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Trust or its shareholders.

     Messrs.  Treynor  (Chairman),  Dwight and  Reamer are  members of the Audit
Committee of the Board of Trustees of the Trust.  Each member is  independent of
the Trust, as defined by New York Stock Exchange  Listing  Standards.  The Audit
Committee's functions include making  recommendations to the Board regarding the
selection of the independent certified public accountants, and reviewing matters
relative  to trading  and  brokerage  policies  and  practices,  accounting  and
auditing  practices and  procedures,  accounting  records,  internal  accounting
controls,  and the  functions  performed by the  custodian,  transfer  agent and
dividend disbursing agent of the Trust.

     Trustees of the Trust who are not affiliated  with the Adviser may elect to
defer receipt of all or a percentage of their annual fees in accordance with the
terms of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under the
Trustees' Plan, an eligible Trustee may elect to have his deferred fees invested
by the Trust in the  shares of one or more  funds in the Eaton  Vance  Family of
Funds,  and the amount paid to the  Trustees  under the  Trustees'  Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Trustees' Plan will have a negligible  effect on the
Trust's assets, liabilities, and net income per share, and will not obligate the
Trust to retain the  services of any  Trustee or  obligate  the Trust to pay any
particular  level of  compensation  to the  Trustee.  The Trust  does not have a
retirement plan for its Trustees.

     Each interested Trustee and officer holds comparable positions with certain
affiliates  of Eaton Vance or with  certain  other funds of which Eaton Vance or
BMR is the investment adviser or distributor.

     The fees and expenses of the  noninterested  Trustees of the Trust are paid
by the Trust.  (The  Trustees  of the Trust who are  members of the Eaton  Vance
organization  receive no  compensation  from the Trust.)  During the fiscal year
ended  June 30,  2000,  the  noninterested  Trustees  of the  Trust  earned  the
following compensation in their capacities as Trustees of the Trust, and for the
year  ended  December  31,  2000  earned  the  following  compensation  in their
capacities as Trustees of the funds in the Eaton Vance fund complex(1).


                                                                             Total Compensation
                                                       Compensation            from Trust and
Name                                                    from Trust              Fund Complex
----                                                    ----------              ------------
                                                                           
Jessica M. Bibliowicz............................         $   --                 $ 160,000
Donald R. Dwight.................................          1,737                   162,500(2)
Samuel L. Hayes, III.............................          2,084                   170,000
Norton H. Reamer.................................          1,083                   160,000
Lynn A. Stout....................................          1,950                   160,000(3)
Jack L. Treynor..................................          1,977                   170,000

----------
(1)  As of  April  15,  2001  the  Eaton  Vance  fund  complex  consists  of 155
     registered investment companies or series thereof.
(2)  Includes $60,000 of deferred compensation.
(3)  Includes $16,000 of deferred compensation.

                                       8

                     INVESTMENT ADVISORY AND OTHER SERVICES

     The  Trust  will be  responsible  for all of its  costs  and  expenses  not
expressly  stated to be payable by Eaton Vance under the  Advisory  Agreement or
Administration  Agreement.  Such  costs  and  expenses  to be borne by the Trust
include,  without  limitation:  custody and transfer  agency fees and  expenses,
including those incurred for determining net asset value and keeping  accounting
books and records; expenses of pricing and valuation services; the cost of share
certificates;  membership dues in investment company organizations;  expenses of
acquiring,  holding and disposing of securities and other investments;  fees and
expenses of registering  under the securities  laws, stock exchange listing fees
and governmental fees; expenses of reports to shareholders, proxy statements and
other  expenses of  shareholders'  meetings;  insurance  premiums;  printing and
mailing  expenses;  interest,  taxes and corporate  fees;  legal and  accounting
expenses; compensation and expenses of Trustees not affiliated with Eaton Vance;
expenses of conducting  repurchase offers for the purpose of repurchasing  Trust
shares;  and investment  advisory and  administration  fees. The Trust will also
bear expenses incurred in connection with any litigation in which the Trust is a
party and any legal  obligation  to indemnify  its  officers  and Trustees  with
respect thereto, to the extent not covered by insurance.

     For the six months  ended  December  31, 2000 and for the fiscal year ended
June 30, 2000, the Trust paid the Adviser advisory fees  aggregating  $2,035,665
and  $4,236,411,  respectively,  equivalent  to 0.85%  (annualized),  and 0.85%,
respectively,  of the Trust's  average  daily gross  assets.  As of December 31,
2000,  the gross  assets of the Trust were  $450,576,985.  For the  period  from
October  30,  1998  (start of  business)  to June 30,  1999,  the Trust paid the
Adviser advisory fees aggregating  $2,747,986,  equivalent to 0.85% (annualized)
of the  Trust's  average  daily gross  assets.  To enhance the net income of the
Trust, the Adviser reduced its advisory fee in the amount of $579,350.

     For the six months  ended  December  31, 2000 and for the fiscal year ended
June 30,  2000,  the Trust  paid Eaton  Vance  administration  fees  aggregating
$598,671 and $1,246,003,  respectively,  equivalent to 0.25%  (annualized),  and
0.25%,  respectively,  of the Trust's average daily gross assets. For the period
from October 30, 1998 (start of business) to June 30, 1999, the Trust paid Eaton
Vance administration fees aggregating $806,604, equivalent to 0.25% (annualized)
of the  Trust's  average  daily gross  assets.  To enhance the net income of the
Trust, Eaton Vance reduced its administration fee in the amount of $173,333.

     For the six months ended  December 31, 2000, the fiscal year ended June 30,
2000,  and for the period from the start of  business,  October 30, 1998 to June
30, 1999, Eaton Vance Distributors, Inc., made payments to UBS Warburg LLC under
the  Shareholder  Servicing  Agreement for the common shares of the Trust in the
amount of $236,939, $498,401 and $254,719, respectively.

     The Advisory  Agreement  with the Adviser  continues in effect to March 31,
2002 and from  year to year so long as such  continuance  is  approved  at least
annually  (i) by the vote of a majority  of the  noninterested  Trustees  of the
Trust or of the Adviser cast in person at a meeting  specifically called for the
purpose  of voting on such  approval  and (ii) by the Board of  Trustees  of the
Trust or by vote of a majority of the  outstanding  interests of the Trust.  The
Trust's  Administration  Agreement continues in effect from year to year so long
as such  continuance  is approved at least annually by the vote of a majority of
the Trust's  Trustees.  Each  agreement  may be  terminated  at any time without
penalty on sixty (60) days' written notice by the Trustees of the Trust or Eaton
Vance, as applicable,  or by vote of the majority of the  outstanding  shares of
the Trust.  Each  agreement  will  terminate  automatically  in the event of its
assignment. Each agreement provides that, in the absence of willful misfeasance,
bad faith,  gross negligence or reckless  disregard of its obligations or duties
to the Trust under such agreements on the part of Eaton Vance, Eaton Vance shall
not be liable to the Trust for any loss  incurred,  to the extent not covered by
insurance.

                                       9

     INFORMATION  ABOUT BMR AND EATON  VANCE.  BMR and Eaton Vance are  business
trusts  organized under  Massachusetts  law. Eaton Vance,  Inc. ("EV") serves as
trustee of BMR and Eaton Vance.  EV is a wholly-owned  subsidiary of Eaton Vance
Corporation ("EVC"), a Maryland  corporation and publicly-held  holding company.
EVC through its  subsidiaries  and  affiliates  engages  primarily in investment
management,  administration and marketing  activities.  The Directors of EVC are
James B. Hawkes, John G.L. Cabot, Leo I. Higdon, Jr., John M. Nelson, Vincent M.
O'Reilly and Ralph Z. Sorenson.  All of the issued and outstanding shares of BMR
are owned by Eaton Vance and all of the shares of Eaton Vance are owned by Eaton
Vance  Business  Trust,  which is owned by EVC.  All  shares of the  outstanding
Voting Common Stock of EVC are deposited in a Voting Trust,  the Voting Trustees
of which are Messrs.  Hawkes, Jeffrey P. Beale, Alan R. Dynner, Thomas E. Faust,
Jr., Thomas J. Fetter,  Scott H. Page,  Duncan W. Richardson,  William M. Steul,
Payson F. Swaffield,  Michael W. Weilheimer and Wharton P. Whitaker (all of whom
are  officers of Eaton  Vance.) The Voting  Trustees  have  unrestricted  voting
rights for the election of Directors of EVC. All of the outstanding voting trust
receipts  issued under said Voting Trust are owned by certain of the officers of
BMR and Eaton Vance who are also officers,  or officers and Directors of EVC and
EV. As indicated under "Trustees and Officers", all of the officers of the Trust
(as well as Mr. Hawkes who is also a Trustee) hold  positions in the Eaton Vance
organization.

     CODE OF  ETHICS.  The  Adviser  and  Trust  have  adopted  Codes of  Ethics
governing  personal  securities  transactions.  Under  the  Codes,  Eaton  Vance
employees may purchase and sell  securities  (including  securities  held by the
Trust) subject to certain  pre-clearance  and reporting  requirements  and other
procedures.

     EVC and its  affiliates  and their officers and employees from time to time
have transactions with various banks, including the custodian of the Trust, IBT.
It is Eaton Vance's  opinion that the terms and conditions of such  transactions
were not and will not be influenced by existing or potential  custodial or other
relationships between the Trust and such banks.

                        DETERMINATION OF NET ASSET VALUE

     The net asset value per Share of the Trust is determined no less frequently
than  weekly,  generally  on the last day of the  week  that the New York  Stock
Exchange  (the  "Exchange")  is open for  trading,  as of the  close of  regular
trading on the  Exchange  (normally  4:00 p.m.  New York time).  The Trust's net
asset  value per Share is  determined  by IBT, in the manner  authorized  by the
Trustees of the Trust.  Net asset value is computed by dividing the value of the
Trust's total assets, less its liabilities by the number of shares outstanding.

     The Trustees  have approved and monitor the  procedures  under which Senior
Loans are valued.  The Adviser and the  Valuation  Committee  may  implement new
pricing methodologies or expand mark-to-market  valuation of Senior Loans in the
future,  which may result in a change in the  Trust's net asset value per share.
The  Trust's  net asset  value per share  will also be  affected  by fair  value
pricing  decisions and by changes in the market for Senior Loans. In determining
the fair value of a Senior Loan,  the Adviser will  consider  relevant  factors,
data, and information,  including:  (i) the  characteristics  of and fundamental
analytical data relating to the Senior Loan,  including the cost, size,  current
rate,  period until next interest rate reset,  maturity and base lending rate of
the Senior  Loan,  the terms and  conditions  of the Senior Loan and any related
agreements,  and  the  position  of  the  Senior  Loan  in the  Borrower's  debt
structure; (ii) the nature, adequacy and value of the collateral,  including the
Trust's rights, remedies and interests with respect to the collateral; (iii) the
creditworthiness  of the  Borrower,  based  on an  evaluation  of its  financial
condition,  financial  statements and information about the Borrower's business,
cash flows, capital structure and future prospects; (iv) information relating to
the market for the Senior Loan,  including  price  quotations for and trading in
the Senior Loan and interests in similar Senior Loans and the market environment
and investor  attitudes  towards the Senior Loan and interests in similar Senior
Loans; (v) the experience,  reputation, stability and financial condition of the
Agent and any  intermediate  participants  in the Senior Loan;  and (vi) general
economic and market conditions affecting the fair value of the Senior Loan.

                                       10

     Non-loan holdings (other than short term obligations,  but including listed
issues) may be valued on the basis of prices  furnished  by one or more  pricing
services which determine prices for normal,  institutional-size trading units of
such securities using market information, transactions for comparable securities
and various  relationships  between securities which are generally recognized by
institutional  traders. In certain  circumstances,  portfolio securities will be
valued at the last sale price on the  exchange  that is the  primary  market for
such securities, or the average of the last quoted bid price and asked price for
those securities for which the over-the- counter market is the primary market or
for listed  securities in which there were no sales during the day. The value of
interest rate swaps will be based upon a dealer quotation.

     Short-term  obligations  which  mature  in 60 days or less  are  valued  at
amortized  cost,  if their  original term to maturity when acquired by the Trust
was 60 days or less,  or are valued at  amortized  cost using their value on the
61st day prior to maturity,  if their original term to maturity when acquired by
the Trust was more than 60 days,  unless in each case this is determined  not to
represent fair value.  Repurchase agreements will be valued by the Trust at cost
plus accrued  interest.  Securities for which there exist no price quotations or
valuations  and all other assets are valued at fair value as  determined in good
faith by or on behalf of the Trustees of the Trust.

                                PORTFOLIO TRADING

     Specific decisions to purchase or sell securities for the Trust are made by
employees  of the  Adviser  who  are  appointed  and  supervised  by its  senior
officers.  Such  employees  may serve other  clients of the Adviser in a similar
capacity. Changes in the Trust's investments are reviewed by the Board.

     The Trust  will  acquire  Senior  Loans  from  major  international  banks,
selected domestic  regional banks,  insurance  companies,  finance companies and
other financial  institutions.  In selecting  financial  institutions from which
Senior Loans may be acquired,  the Adviser will  consider,  among other factors,
the  financial  strength,  professional  ability,  level of service and research
capability of the institution.  While these financial institutions are generally
not required to  repurchase  Senior Loans which they have sold,  they may act as
principal or on an agency basis in connection with their sale by the Trust.

     Other fixed-income obligations which may be purchased and sold by the Trust
are  generally  traded in the  over-the-counter  market  on a net  basis  (i.e.,
without commission) through broker-dealers or banks acting for their own account
rather than as brokers,  or otherwise  involve  transactions  directly  with the
issuers of such obligations.  The Trust may also purchase fixed-income and other
securities from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Trust will not
pay  significant  brokerage  commissions,  on  occasion it may be  necessary  or
desirable to purchase or sell a security through a broker on an agency basis, in
which case the Trust  will incur a  brokerage  commission.  Although  spreads or
commissions on portfolio  transactions will, in the judgment of the Adviser,  be
reasonable  in  relation  to the  value of the  services  provided,  spreads  or
commissions exceeding those which another firm might charge may be paid to firms
who were  selected  to  execute  transactions  on  behalf  of the  Trust and the
Adviser's  other  clients for providing  brokerage and research  services to the
Adviser.

     Securities  considered as investments for the Trust may also be appropriate
for other investment accounts managed by the Adviser or its affiliates. Whenever
decisions  are made to buy or sell  securities  by the  Trust and one or more of
such other  accounts  simultaneously,  the Adviser  will  allocate  the security
transactions  (including  "hot"  issues)  in a manner  which it  believes  to be
equitable under the circumstances. As a result of such allocations, there may be
instances  where  the  Trust  will  not  participate  in a  transaction  that is
allocated  among  other  accounts.  If an  aggregated  order  cannot  be  filled
completely,  allocations  may be made on a pro rata  basis.  An order may not be
allocated on a pro rata basis where, for example:  (i) consideration is given to
portfolio  managers who have been  instrumental  in developing or  negotiating a
particular   investment;   (ii)  consideration  is  given  to  an  account  with
specialized investment policies that coincide with the particulars of a specific
investment;  (iii) pro rata  allocation  would  result in  odd-lot or de minimis
amounts  being  allocated  to a  portfolio  or other  client;  or (iv) where the
Adviser  reasonably  determines  that  departure  from a pro rata  allocation is
advisable.  While  these  aggregation  and  allocation  policies  could  have  a
detrimental  effect on the price or amount of the  securities  available  to the

                                       11

Trust from time to time, it is the opinion of the Trustees of the Trust that the
benefits from the Adviser organization  outweigh any disadvantage that may arise
from exposure to simultaneous transactions.

     For the fiscal  years  ended June 30,  2000 and 2001 and for the six months
ended December 31, 2000, the Trust paid no brokerage commissions.

     The  frequency of portfolio  purchases  and sales,  known as the  "turnover
rate,"  will vary from year to year.  The Trust's  turnover  rate for the fiscal
years ended June 30, 2000 and 1999 were 63% and 27%, respectively.

                                      TAXES

     The  following   discussion  is  for  general  information  purposes  only.
Prospective  investors should consult their tax advisors  regarding the specific
federal  income  tax  consequences  of  purchasing,  holding  and  disposing  of
Preferred  Shares,  as well as the effects of state,  local and foreign tax laws
and any proposed tax law changes.

     The Trust has elected to be, and intends to qualify each year for treatment
as a regulated  investment  company ("RIC"),  under the Internal Revenue Code of
1986, as amended (the "Code"),  in order to reduce or eliminate  federal  income
tax. Accordingly,  the Trust intends to satisfy certain requirements relating to
sources of its  income and  diversification  of its assets and to  distribute  a
sufficient amount of its investment  company taxable income so as to effect such
qualification.

     Dividends  and  other  distributions  declared  by the  Trust  in  October,
November or December of any year and payable to Shareholders of record on a date
in any of those  months  will be  deemed  to have  been  paid by the  Trust  and
received by the Shareholders on December 31st of that year if the  distributions
are paid by the Trust during January of the following year.  Accordingly,  those
distributions  will be taxed to Shareholders for the year in which that December
31st falls.

     To avoid a non-deductible  4% federal excise tax, the Trust must distribute
to its  Shareholders by the end of each calendar year  substantially  all of its
ordinary income and capital gain net income,  plus certain other amounts.  Under
current law, provided that the Trust qualifies as a RIC, it should not be liable
for any  income,  corporate  excise  or  franchise  tax in the  Commonwealth  of
Massachusetts.

     Income and gains from  investments in securities of foreign  issuers may be
subject to foreign  income,  withholding  or other  taxes,  which may reduce the
Trust's yield and/or total return. Tax conventions between certain countries and
the United States may reduce or eliminate these foreign taxes. Shareholders will
not be able to claim any foreign tax credit or  deduction  with respect to these
foreign taxes.

     Certain investments of the Trust may bear original issue discount or market
discount for tax purposes.  The Trust will be required to include in income each
year a portion  of such  original  issue  discount  and may elect to  include in
income each year a portion of such market discount.  In addition,  the Trust may
be  required to include in income each year,  for federal  income tax  purposes,
income with respect to these or other investments even though the collectibility
by the Trust of cash  payments  corresponding  to such income is  doubtful.  The
Trust may have to dispose of investments  that it would otherwise have continued
to hold to provide  cash to enable it to satisfy its  distribution  requirements
with respect to such income.

     Some of the Trust's investment practices (including those involving certain
risk management  transactions) may be subject to special  provisions of the Code
that, among other things,  may defer the Trust's deduction of certain losses and
affect the holding  period of certain  securities  it holds and the character of

                                       12

certain gains or losses it realizes. These provisions may also require the Trust
to  recognize  income  or  gain  without  receiving  cash  with  which  to  make
distributions in the amounts necessary to satisfy the distribution  requirements
for avoiding  income and excise taxes.  The Trust will monitor its  transactions
and may make  certain tax  elections  to mitigate  the effect of these rules and
prevent its disqualification as a RIC.

     The Trust will designate distributions made to holders of common shares and
to holders of Preferred  Shares,  including the Preferred  Shares, in accordance
with each  class's  proportionate  share of each item of Trust  income  (such as
tax-exempt interest, net capital gains and other taxable income).

     On a sale or  exchange  of  Preferred  Shares,  the holder  will  recognize
taxable gain or loss equal to the difference between the holder's adjusted basis
for the Preferred Shares and the amount realized.  Any such gain or loss will be
treated as capital gain or loss if the  Preferred  Shares are capital  assets in
the holder's hands and as long-term capital gain or loss if the Preferred Shares
are held for more than one year.  Any loss  realized  on the sale or exchange of
Preferred Shares held by a Shareholder for six months or less will be disallowed
to the  extent the  shareholder  has  received  exempt-interest  dividends  with
respect to those Preferred Shares, and any such loss that exceeds the disallowed
amount  will  be  treated  as a  long-term  capital  loss to the  extent  of any
distribution  of net capital gain with  respect to those  Preferred  Shares.  In
addition,  a loss  realized on a sale of Preferred  Shares will be disallowed to
the extent the  Shareholder  acquires other  Preferred  Shares within the period
beginning 30 days before, and ending 30 days after, the sale.

     Investment in Preferred Shares is not appropriate for non-U.S. investors or
as a retirement plan investment.

                                OTHER INFORMATION

     The Trust is an organization of the type commonly known as a "Massachusetts
business trust." Under  Massachusetts law,  shareholders of such a trust may, in
certain circumstances, be held personally liable as partners for the obligations
of the  trust.  The  Declaration  of Trust  contains  an express  disclaimer  of
shareholder  liability  in  connection  with the  Trust  property  or the  acts,
obligations or affairs of the Trust.  The Declaration of Trust also provides for
indemnification  out of the Trust property of any  shareholder  held  personally
liable for the claims and  liabilities to which a shareholder may become subject
by reason of being or having been a shareholder. Thus, the risk of a shareholder
incurring  financial  loss on account  of  shareholder  liability  is limited to
circumstances in which the Trust itself is unable to meet its  obligations.  The
Trust believes the risk of any shareholder (including any Preferred Shareholder)
incurring any liability for the obligations of the Trust is remote.

     The  Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law; but nothing in the Declaration of
Trust protects a Trustee against any liability to the Trust or its  shareholders
to which he would  otherwise  be subject by reason of willful  misfeasance,  bad
faith,  gross  negligence,  or reckless  disregard of the duties involved in the
conduct of his office.  Voting rights are not  cumulative,  which means that the
holders of more than 50% of the shares  voting for the  election of Trustees can
elect 100% of the Trustees and, in such event, the holders of the remaining less
than 50% of the  shares  voting  on the  matter  will  not be able to elect  any
Trustees.

     The  Declaration  of Trust provides that no person shall serve as a Trustee
if shareholders  holding  two-thirds of the outstanding  shares have removed him
from  that  office  either  by a  written  declaration  filed  with the  Trust's
custodian or by votes cast at a meeting called for that purpose. The Declaration
of Trust further  provides that the Trustees of the Trust shall  promptly call a
meeting of the shareholders for the purpose of voting upon a question of removal
of any such Trustee or Trustees when requested in writing so to do by the record
holders of not less than 10 per centum of the outstanding shares.

     The Trust's  prospectus and SAI do not contain all of the  information  set
forth in the  Registration  Statement  that the Fund has filed with the SEC. The
complete Registration Statement may be obtained from the SEC upon payment of the
fee prescribed by its Rules and Regulations.

                                       13

                                    AUDITORS

     Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts,  are the
independent  auditors  for the  Trust,  providing  audit  services,  tax  return
preparation,  and assistance and consultation with respect to the preparation of
filings with the SEC.

                              FINANCIAL STATEMENTS

     The audited financial statements of, and the independent  auditors' reports
for, the Trust appear in the Trust's most recent annual and  semiannual  reports
to shareholders  and are  incorporated by reference into this SAI. A copy of the
annual and semiannual reports accompanies this SAI.

     HOUSEHOLDING.   Consistent  with  applicable  law,  duplicate  mailings  of
shareholder reports and certain other Trust information to shareholders residing
at the same address may be eliminated.

     Registrant  incorporates by reference the audited financial information for
the Trust for the six months  ended  December  31,  2000 and for the fiscal year
ended June 30, 2000, as previously filed  electronically with the SEC (Accession
No. 0000950156-01-000120 and 0000950156-01-000423), respectively.

                                       14

                                   APPENDIX A

       ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR PREFERRED SHARES

GENERAL

     The By-laws  provides that the Applicable  Rate for each Dividend Period of
shares  of each  series  shall be equal to the rate per annum  that the  Auction
Agent  advises has  resulted on the Business  Day  preceding  the first day of a
Dividend Period for each such series (an "Auction Date") from  implementation of
the Auction  Procedures set forth in the By-laws and summarized  below, in which
persons  determine to hold or offer to sell or,  based on dividend  rates bid by
them,  offer  to  purchase  or  sell  shares  of  such  series.   Each  periodic
implementation of the Auction  Procedures is referred to herein as an "Auction."
The following  summary is qualified by reference to the Auction  Procedures  set
forth in the By-laws.

     AUCTION  AGENCY  AGREEMENT.  The Trust has entered  into an Auction  Agency
Agreement (the "Auction Agency  Agreement")  with the Auction Agent  (currently,
Bankers Trust  Company),  which provides,  among other things,  that the Auction
Agent will  follow the  Auction  Procedures  for  purposes  of  determining  the
Applicable  Rate for shares of each  series of  Preferred  Shares so long as the
Applicable  Rate for shares of such  series is to be based on the results of the
Auction.

     BROKER-DEALER AGREEMENTS. Each Auction requires the participation of one or
more   Broker-Dealers.   The   Auction   Agent  has  entered   into   agreements
(collectively,  the  "Broker-Dealer  Agreements")  with  several  Broker-Dealers
selected  by  the  Trust,   which  provides  for  the   participation  of  those
Broker-Dealers  in  Auctions  for shares of a series of  Preferred  Shares.  See
"Broker-Dealers" below.

     SECURITIES DEPOSITORY. The Depository Trust Company ("DTC") will act as the
Securities  Depository  for the Agent  Members  with  respect  to shares of each
series of Preferred Shares. One certificate for all of the shares of each series
of Preferred  Shares will be registered in the name of Cede & Co., as nominee of
the Securities  Depository.  Such  certificate  will bear a legend to the effect
that such certificate is issued subject to the provisions  restricting transfers
of  Preferred  Shares  contained  in the  By-laws.  The Trust  will  also  issue
stop-transfer  instructions  to the transfer  agent for shares of each series of
Preferred Shares. Prior to the commencement of the right of Holders of Preferred
Shares  to  elect  a  majority  of the  Trust's  Trustees,  as  described  under
"Description of Preferred  Shares-Voting  Rights" in the Prospectus,  Cede & Co.
will be the Holder of all shares of each series of  Preferred  Shares and owners
of such shares will not be entitled to receive  certificates  representing their
ownership interest in such shares.

     DTC, a New York chartered limited purpose trust company,  performs services
for its  participants  (including  Agent  Members),  some of whom (and/or  their
representatives)  own DTC.  DTC  maintains  lists of its  participants  and will
maintain the positions  (ownership  interests) held by each such Agent Member in
shares of each series of Preferred  Shares,  whether for its own account or as a
nominee for another person.

ORDERS BY EXISTING HOLDERS AND POTENTIAL HOLDERS

     On or prior to the Submission Deadline on each Auction Date for shares of a
series of Preferred Shares:

     (a)  each  Beneficial  Owner of shares  of such  series  may  submit to its
          Broker-Dealer by telephone or otherwise a:

          (i)  "Hold Order" -- indicating the number of Outstanding  shares,  if
               any,  of such  series  that  such  Beneficial  Owner  desires  to
               continue to hold without regard to the  Applicable  Rate for such
               shares of such series for the next succeeding Rate Period of such
               shares;

                                      A-1

          (ii) "Bid" -- indicating the number of Outstanding  shares, if any, of
               such  series  that such  Beneficial  Owner  offers to sell if the
               Applicable  Rate  for such  shares  of such  series  for the next
               succeeding  Rate  Period  shall be less  than the rate per  annum
               specified by such Beneficial Owner in such Bid; and/or

          (iii)"Sell Order" -- indicating the number of Outstanding  shares,  if
               any, of such that such  Beneficial  Owner  offers to sell without
               regard to the Applicable  Rate for such shares of such series for
               the next succeeding Rate Period; and

     (b)  Broker-Dealers  shall contact  customers who are Potential  Beneficial
          Owners  by  telephone  or  otherwise  including  Persons  who  are not
          Beneficial  Owners to determine the number of shares,  if any, of such
          series that they offer to purchase if the  Applicable  Rate for shares
          of such  series for the next  succeeding  Rate Period is not less than
          the rate per annum specified by such Potential Beneficial Owners (also
          defined as a "Bid" and collectively  with such expressions of interest
          as defined in (a)(ii) defined as "Bids."

     The communication to a Broker-Dealer of the foregoing  information in parts
(a) and (b) of this section is herein referred to as an "Order" and collectively
as "Orders." A Beneficial Owner or a Potential Beneficial Owner placing an Order
with its  Broker-Dealer  is herein referred to as a "Bidder" and collectively as
"Bidders."  The submission by a  Broker-Dealer  of an Order to the Auction Agent
shall likewise be referred to herein as an "Order" and collectively as "Orders,"
and an Existing Holder or Potential  Holder who places an Order with the Auction
Agent or on  whose  behalf  an Order is  placed  with the  Auction  Agent  shall
likewise be referred to herein as a "Bidder" and collectively as "Bidders."

     A  Beneficial   Owner  may  submit   different   types  of  Orders  to  its
Broker-Dealer  with respect to shares of a series of Preferred  Shares then held
by such Beneficial  Owner. A Bid placed by a Beneficial  Owner specifying a rate
higher than the Applicable  Rate  determined in the Auction shall  constitute an
irrevocable  offer to sell the shares subject  thereto.  A Beneficial Owner that
submits a Bid to its Broker-Dealer having a rate higher than the Maximum Rate on
the Auction Date thereof will be treated as having submitted a Sell Order to its
Broker-Dealer.  A  Beneficial  Owner that  fails to submit to its  Broker-Dealer
prior to the  Submission  Deadline  for shares of such series an Order or Orders
covering all the Outstanding shares of such series held by such Beneficial Owner
will be deemed to have submitted a Hold Order to its Broker-Dealer  covering the
number of Outstanding  shares of such series held by such  Beneficial  Owner and
not subject to Orders submitted to its Broker-Dealer; provided, however, that if
a Beneficial Owner fails to submit to its Broker-Dealer  prior to the Submission
Deadline for shares of a series of Preferred  Shares an Order or Orders covering
all of the Outstanding  shares of such series held by such Beneficial  Owner for
an Auction  relating  to a Special  Rate Period  consisting  of more than 7 Rate
Period Days, such Beneficial Owner will be deemed to have submitted a Sell Order
to its  Broker-Dealer  covering the number of Outstanding  shares of such series
held by such  Beneficial  Owner  and not  subject  to  Orders  submitted  to its
Broker-Dealer.  A Sell Order shall  constitute an irrevocable  offer to sell the
shares of such series of Preferred  Shares subject  thereto at a price per share
equal to $25,000.  A Beneficial  Owner of shares of a series of Preferred Shares
that offers to become the Beneficial  Owner of additional  shares of such series
of  Preferred  Shares is, for  purposes  of such offer,  a Potential  Beneficial
Owner.

     A Potential  Beneficial Owner of shares of a series of Preferred Shares may
submit to its  Broker-Dealer  Bids in which it offers  to  purchase  shares of a
series if the Applicable Rate for the next Rate Period is not less than the rate
specified in such Bid. A Bid placed by a Potential Beneficial Owner specifying a
rate not higher than the Maximum Rate shall  constitute an irrevocable  offer to
purchase the number of shares of a series of Preferred  Shares specified in such
Bid if the rate  determined  in the Auction is equal to or greater than the rate
specified in such Bid.

     As   described   more  fully  below  under   "--Submission   of  Orders  by
Broker-Dealers to Auction Agent," the  Broker-Dealers  will submit the Orders of
their respective  customers who are Beneficial  Owners and Potential  Beneficial
Owners to the Auction Agent,  designating themselves (unless otherwise permitted

                                      A-2

by the  Trust) as  Existing  Holders  in  respect  of  shares of such  series of
Preferred  Shares  subject to Orders  submitted  or deemed  submitted to them by
Beneficial  Owners and as Potential  Holders in respect of shares of such series
subject to Orders  submitted to them by Potential  Beneficial  Owners.  However,
neither  the  Trust  nor  the   Auction   Agent  will  be   responsible   for  a
Broker-Dealer's failure to comply with the foregoing.  Any Order placed with the
Auction  Agent by a  Broker-Dealer  as or on behalf of an  Existing  Holder or a
Potential  Holder will be treated in the same  manner as an Order  placed with a
Broker-Dealer  by  a  Beneficial  Owner  or a  Potential  Beneficial  Owner,  as
described in the preceding paragraph.  Similarly, any failure by a Broker-Dealer
to submit to the Auction  Agent an Order in respect of any shares of a series of
Preferred  Shares held by it or its customers who are Beneficial  Owners will be
treated  in the same  manner as a  Beneficial  Owner's  failure to submit to its
Broker-Dealer an Order in respect of shares of a series of Preferred Shares held
by  it,  as  described  in  the  second  preceding  paragraph.  For  information
concerning  the priority  given to different  types of Orders placed by Existing
Holders, see "--Submission of Orders by Broker-Dealers to Auction Agent" below.

     Neither  the Trust nor an  affiliate  may  submit an Order in any  Auction,
except  that any  Broker-Dealer  that is an  affiliate  of the Trust may  submit
Orders in an Auction, but only if such Orders are not for its own account.

     The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder  continuing to hold or selling,
or a Potential  Holder  purchasing,  a number of shares of a series of Preferred
Shares that is fewer than the number of shares of such series  specified  in its
Order.  See  "--Acceptance  and Rejection of Submitted  Bids and Submitted  Sell
Orders and Allocation of Shares" below. To the extent the allocation  procedures
have that result,  Broker-Dealers  that have  designated  themselves as Existing
Holders or Potential  Holders in respect of customer  Orders will be required to
make appropriate pro rata allocations  among their  respective  customers.  Each
purchase  or  sale  shall  be made  for  settlement  on the  Business  Day  next
succeeding  the  Auction  Date  at a price  per  share  equal  to  $25,000.  See
"--Notification of Results; Settlement" below.

     As described  above, any Bid specifying a rate higher than the Maximum Rate
will (i) be treated as a Sell Order if  submitted  by a  Beneficial  Owner or an
Existing Holder and (ii) not be accepted if submitted by a Potential  Beneficial
Owner or a Potential Holder.  Accordingly,  the Auction Procedures establish the
Maximum  Rate as a maximum  rate per annum that can result from an Auction.  See
"--Determination  of Sufficient  Clearing Bids,  Winning Bid Rate and Applicable
Rate" and  "--Acceptance  and  Rejection of Submitted  Bids and  Submitted  Sell
Orders and Allocation of Shares" below.

CONCERNING THE AUCTION AGENT

     The  Auction  Agent is acting as agent  for the  Trust in  connection  with
Auctions.  In the absence of bad faith or  negligence  on its part,  the Auction
Agent will not be liable for any action taken,  suffered,  or omitted or for any
error of judgment made by it in the  performance of its duties under the Auction
Agency  Agreement  and will not be liable for any error of judgment made in good
faith  unless the Auction  Agent will have been  negligent in  ascertaining  the
pertinent facts.

     The  Auction  Agent may rely upon,  as evidence  of the  identities  of the
Existing Holders of shares of a series of Preferred Shares,  the Auction Agent's
registry of Existing  Holders,  the  results of  Auctions  and notices  from any
Broker-Dealer  (or other  person,  if  permitted  by the Trust) with  respect to
transfers described under "The Auction-Secondary  Market Trading and Transfer of
Preferred  Shares" in the  Prospectus  and notices  from the Trust.  The Auction
Agent is not  required  to accept any such  notice  for an Auction  unless it is
received by the Auction Agent by 3:00 p.m.,  New York City time, on the Business
Day preceding such Auction.

     The Auction Agent may terminate the Auction Agency Agreement upon notice to
the Trust on a date no earlier  than 60 days after such  notice.  If the Auction
Agent  should  resign,  the Trust  will use its best  efforts  to enter  into an
agreement with a successor Auction Agent containing substantially the same terms

                                      A-3

and conditions as the Auction Agency Agreement. The Trust may remove the Auction
Agent,  provided that prior to such  removal,  the Trust shall have entered into
such an agreement with a successor Auction Agent.

BROKER-DEALERS

     The Auction  Agent after each  Auction for shares of a series of  Preferred
Shares  will pay to each  Broker-Dealer,  from funds  provided  by the Trust,  a
service  charge  at the  annual  rate of 1/4 of 1% in the  case  of any  Auction
immediately  preceding a Dividend  Period of less than one year, or a percentage
agreed  to by the  Trust  and the  Broker-Dealers  in the  case  of any  Auction
immediately  preceding a Dividend Period of one year or longer,  of the purchase
price of shares of such series of Preferred Shares placed by such  Broker-Dealer
at such Auction. For the purposes of the preceding sentence,  shares of a series
of Preferred  Shares will be placed by a  Broker-Dealer  if such shares were (a)
the subject of Hold Orders deemed to have been submitted to the Auction Agent by
the Broker-Dealer and were acquired by such  Broker-Dealer for its customers who
are  Beneficial  Owners  or (b)  the  subject  of an  Order  submitted  by  such
Broker-Dealer that is (i) a Submitted Bid of an Existing Holder that resulted in
such Existing  Holder  continuing to hold such shares as a result of the Auction
or (ii) a Submitted Bid of a Potential  Holder that  resulted in such  Potential
Holder  purchasing  such shares as a result of the Auction or (iii) a valid Hold
Order.

     The  Trust  may  request  the  Auction  Agent  to  terminate  one  or  more
Broker-Dealer  Agreements at any time,  provided that at least one Broker-Dealer
Agreement is in effect after such termination.

     The Broker-Dealer  Agreement  provides that a Broker-Dealer  (other than an
affiliate  of the Trust)  may submit  Orders in  Auctions  for its own  account,
unless the Trust notifies all  Broker-Dealers  that they may no longer do so, in
which case Broker-Dealers may continue to submit Hold Orders and Sell Orders for
their own  accounts.  Any  Broker-Dealer  that is an  affiliate of the Trust may
submit Orders in Auctions,  but only if such Orders are not for its own account.
If a Broker-Dealer submits an Order for its own account in any Auction, it might
have an  advantage  over other  Bidders  because it would have  knowledge of all
Orders submitted by it in that Auction. Such Broker-Dealer,  however,  would not
have knowledge of Orders submitted by other Broker-Dealers in that Auction.

SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT

     Prior to 1:00 P.M., New York City time, on each Auction Date, or such other
time on the Auction Date  specified by the Auction Agent (i.e.,  the  Submission
Deadline),  each  Broker-Dealer  will submit to the Auction Agent in writing all
Orders  obtained by it for the Auction to be  conducted  on such  Auction  Date,
designating  itself  (unless  otherwise  permitted by the Trust) as the Existing
Holder or  Potential  Holder,  as the case may be, in respect of the shares of a
series of  Preferred  Shares  subject to such Orders.  Any Order  submitted by a
Beneficial Owner or a Potential  Beneficial Owner to its Broker-Dealer,  or by a
Broker-Dealer  to the Auction  Agent,  prior to the  Submission  Deadline on any
Auction Date, shall be irrevocable.

     If any rate  specified in any Bid contains  more than three  figures to the
right of the decimal  point,  the Auction Agent will round such rate to the next
highest one-thousandth (0.001) of 1%.

     If one or more Orders of an  Existing  Holder is  submitted  to the Auction
Agent covering in the aggregate  more than the number of  Outstanding  Preferred
Shares of a series  subject to an Auction  held by such  Existing  Holder,  such
Orders will be considered valid in the following order of priority:


                                      A-4

     (a)  all Hold Orders for shares of such series  will be  considered  valid,
          but  only  up  to  and  including  in  the  aggregate  the  number  of
          Outstanding  shares of such series held by such Existing Holder,  and,
          if the number of shares of such  series  subject  to such Hold  Orders
          exceeds the number of  Outstanding  shares of such series held by such
          Existing Holder,  the number of shares subject to each such Hold Order
          shall be reduced  pro rata to cover the number of  Outstanding  shares
          held by such Existing Holder;

     (b)  (i)  any Bid for shares of such series will be considered  valid up to
               and including  the excess of the number of shares of  Outstanding
               shares  of such  series  held by such  Existing  Holder  over the
               number  of  shares  of such  series  subject  to any Hold  Orders
               referred to in clause (a) above;

          (ii) subject to  subclause  (i),  if more than one Bid of an  Existing
               Holder  for shares of such  series is  submitted  to the  Auction
               Agent with the same rate and the number of Outstanding  shares of
               such  series  subject to such Bids is greater  than such  excess,
               such Bids will be considered valid up to and including the amount
               of such excess,  and the number of shares of such series  subject
               to each Bid with the same rate will be reduced  pro rata to cover
               the number of shares of such series equal to such excess;

          (iii)subject to  subclauses  (i) and (ii),  if more than one Bid of an
               Existing  Holder for shares of such  series is  submitted  to the
               Auction Agent with different rates, such Bids shall be considered
               valid in the ascending order of their  respective rates up to and
               including the amount of such excess; and

          (iv) in any such event, the number, if any, of such Outstanding shares
               of such  series  subject to any  portion of Bids  considered  not
               valid in whole or in part under  this  clause (b) will be treated
               as the subject of a Bid for shares of such series by or on behalf
               of a Potential Holder at the rate specified therein; and

     (c)  all Sell Orders for shares of such series will be considered  valid up
          to and  including  the excess of the number of  Outstanding  shares of
          such  series  held by such  Existing  Holder over the sum of shares of
          such  series  subject to valid Hold  Orders  referred to in clause (a)
          above and valid Bids referred to in clause (b) above.

     If more  than one Bid of a  Potential  Holder  for  shares  of a series  of
Preferred  Shares  is  submitted  to the  Auction  Agent by or on  behalf of any
Potential  Holder,  each such Bid submitted will be a separate Bid with the rate
and number of shares of such series therein specified.

DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND APPLICABLE RATE

     Not earlier than the Submission Deadline on each Auction Date for shares of
a series of Preferred  Shares,  the Auction Agent will assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers (each such Hold Order,
Bid or Sell Order as submitted  or deemed  submitted  by a  Broker-Dealer  being
herein  referred  to  as a  "Submitted  Hold  Order,"  a  "Submitted  Bid"  or a
"Submitted  Sell  Order,"  as the case may be,  or as a  "Submitted  Order"  and
collectively  as "Submitted  Hold Orders,"  "Submitted  Bids" or "Submitted Sell
Orders," as the case may be, or as  "Submitted  Orders") and will  determine the
excess of the number of  Outstanding  shares of such  series  over the number of
Outstanding  shares of such series subject to Submitted Hold Orders (such excess
being  herein  referred  to as the  "Available  Preferred  Shares")  and whether
Sufficient  Clearing  Bids have been made in the Auction.  "Sufficient  Clearing
Bids" will have been made if the  number of  Outstanding  shares of such  series
that are the subject of Submitted Bids of Potential Holders specifying rates not
higher  than the Maximum  Rate for all  Dividend  Periods  equals or exceeds the
number of  outstanding  shares of such series that are the subject of  Submitted
Sell Orders  (including  the number of shares of such series  subject to Bids of
Existing Holders specifying rates higher than the Maximum Rate).

     If Sufficient Clearing Bids for shares of a series of Preferred Shares have
been made,  the Auction Agent will  determine the lowest rate  specified in such
Submitted Bids (the "Winning Bid Rate" for shares of such series) which,  taking
into account the rates in the Submitted Bids of Existing  Holders,  would result

                                      A-5

in Existing Holders continuing to hold an aggregate number of Outstanding shares
of such series  which,  when added to the number of  outstanding  shares of such
series  to be  purchased  by  Potential  Holders,  based  on the  rates in their
Submitted Bids,  would equal not less than the Available  Preferred  Shares.  In
such event,  the Winning Bid Rate will be the Applicable  Rate for the next Rate
Period for all shares of such series.

     If  Sufficient  Clearing Bids have not been made (other than because all of
the outstanding  shares of a series of Preferred Shares are subject to Submitted
Hold Orders), the Applicable Rate for the next Dividend Period for all shares of
such series will be equal to the Maximum Rate. If Sufficient  Clearing Bids have
not been made,  Beneficial Owners that have submitted or that are deemed to have
submitted  Sell Orders may not be able to sell in the Auction all shares of such
series  subject  to such Sell  Orders  but will  continue  to own shares of such
series for the next Dividend  Period.  "--Acceptance  and Rejection of Submitted
Bids and Submitted Sell Orders and Allocation of Shares" below.

     If all of the  outstanding  shares  of a series  of  Preferred  Shares  are
subject to Submitted  Hold Orders,  the  Applicable  Rate for all shares of such
series for the next succeeding Dividend Period shall be the All Hold Rate.

ACCEPTANCE  AND  REJECTION  OF  SUBMITTED  BIDS AND  SUBMITTED  SELL  ORDERS AND
ALLOCATION OF SHARES

     Based on the  determinations  made  under  "--Determination  of  Sufficient
Clearing Bids,  Winning Bid Rate and Applicable  Rate" above and, subject to the
discretion  of the  Auction  Agent to  round  and  allocate  certain  shares  as
described  below,  Submitted  Bids and Submitted Sell Orders will be accepted or
rejected in the order of priority set forth in the Auction Procedures,  with the
result  that  Existing  Holders and  Potential  Holders of shares of a series of
Preferred Shares will sell,  continue to hold and/or purchase such shares as set
forth below.  Existing  Holders that  submitted or were deemed to have submitted
Hold Orders (or on whose  behalf Hold  Orders were  submitted  or deemed to have
been  submitted) will continue to hold the shares of such series subject to such
Hold Orders.

     If Sufficient Clearing Bids for shares of a series of Preferred Shares have
been made:

     (a)  Each  Existing  Holder  that  placed or on whose  behalf  was placed a
          Submitted  Sell Order or Submitted Bid specifying any rate higher than
          the Winning Bid Rate will sell the  outstanding  shares of such series
          subject to such Submitted Sell Order or Submitted Bid;

     (b)  Each  Existing  Holder  that  placed or on whose  behalf  was placed a
          Submitted  Bid  specifying a rate lower than the Winning Bid Rate will
          continue to hold the Outstanding shares of such series subject to such
          Submitted Bid;

     (c)  Each  Potential  Holder  that  placed or on whose  behalf was placed a
          Submitted  Bid  specifying a rate lower than the Winning Bid Rate will
          purchase the number of  outstanding  shares of such series  subject to
          such Submitted Bid;

     (d)  Each  Existing  Holder  that  placed or on whose  behalf  was placed a
          Submitted  Bid  specifying  a rate equal to the  Winning Bid Rate will
          continue to hold the shares of such series  subject to such  Submitted
          Bid, unless the number of Outstanding  Preferred Shares of such series
          subject  to all such  Submitted  Bids is  greater  than the  number of
          Preferred  Shares  ("remaining  shares")  in excess  of the  Available
          Preferred  Shares over the number of Preferred Shares accounted for in
          clauses (b) and (c) above,  in which event each  Existing  Holder with
          such a Submitted  Bid will continue to hold  Preferred  Shares of such
          series  subject to such  Submitted Bid  determined on a pro rata basis
          based on the number of  Outstanding  Preferred  Shares  subject to all
          such Submitted Bids of such Existing Holders; and

     (e)  Each  Potential  Holder  that  placed or on whose  behalf was placed a
          Submitted  Bid  specifying  a rate equal to the  Winning  Bid Rate for
          shares of such series will purchase any shares of Available  Preferred
          Shares not  accounted  for in clauses  (b)  through (d) above on a pro
          rata basis based on the  Outstanding  Preferred  Shares subject to all
          such Submitted Bids.

                                      A-6

     If Sufficient Clearing Bids for shares of a series of Preferred Shares have
not been made (unless this results because all Outstanding shares of such series
are subject to Submitted Hold Orders):

     (a)  Each  Existing  Holder  that  placed or on whose  behalf  was placed a
          Submitted  Bid  specifying  a rate equal to or lower than the  Maximum
          Rate for shares of such  series will  continue  to hold the  Preferred
          Shares subject to such Submitted Bid;

     (b)  Each  Potential  Holder  that  placed or on whose  behalf was placed a
          Submitted  Bid  specifying  a rate equal to or lower than the  Maximum
          Rate for shares of such series will  purchase  the number of Preferred
          Shares subject to such Submitted Bid; and

     (c)  Each  Existing  Holder  that  placed or on whose  behalf  was placed a
          Submitted  Bid  specifying  a rate higher  than the  Maximum  Rate for
          shares of such series or a Submitted  Sell Order will sell a number of
          shares of such series  subject to such Submitted Bid or Submitted Sell
          Order  determined  on  a  pro  rata  basis  based  on  the  number  of
          Outstanding  shares of such series  subject to all such Submitted Bids
          and Submitted Sell Orders.

     If, as a result of the pro rata allocation  described in clauses (d) or (e)
of the second preceding paragraph or clause (c) of the next preceding paragraph,
any  Existing  Holder  would be entitled or required to sell,  or any  Potential
Holder  would be  entitled or  required  to  purchase,  a fraction of a share of
Preferred Shares of a series,  the Auction Agent will, in such manner as, in its
sole discretion, it will determine,  round up or down to the nearest whole share
the number of  Preferred  Shares of such series  being sold or purchased on such
Auction  Date so that the number of shares of such series sold or  purchased  by
each Existing Holder or Potential Holder will be whole shares of such series. If
as a result of the pro rata  allocation  described  in clause  (e) of the second
preceding  paragraph,  any  Potential  Holder  would be  entitled or required to
purchase  less than a whole share of a series of Preferred  Shares,  the Auction
Agent  will,  in such  manner  as, in its sole  discretion,  it will  determine,
allocate shares of such series for purchase among Potential Holders so that only
whole shares of such series are purchased by any such Potential Holder,  even if
such allocation  results in one or more of such Potential Holders not purchasing
shares of such series.

NOTIFICATION OF RESULTS; SETTLEMENT

     The  Auction  Agent will be  required  to advise  each  Broker-Dealer  that
submitted an Order of the Applicable  Rate for the next Dividend  Period and, if
the Order was a Bid or Sell Order,  whether  such Bid or Sell Order was accepted
or rejected,  in whole or in part, by telephone by approximately  3:00 P.M., New
York City time, on each Auction Date. Each Broker-Dealer that submitted an Order
for the account of a customer  will then be required to advise such  customer of
the Applicable Rate for the next Dividend Period and, if such Order was a Bid or
a Sell Order, whether such Bid or Sell Order was accepted or rejected,  in whole
or in part,  will be required to confirm  purchases and sales with each customer
purchasing or selling  shares of such series as a result of the Auction and will
be required to advise each customer  purchasing or selling Preferred Shares as a
result of the Auction to give instructions to its Agent Member of the Securities
Depository  to pay the  purchase  price  against  delivery  of such shares or to
deliver such shares against payment therefor, as appropriate.  The Auction Agent
will be  required to record  each  transfer  of shares of a series of  Preferred
Shares on the  registry  of  Existing  Holders to be  maintained  by the Auction
Agent.

     In accordance with the Securities  Depository's  normal procedures,  on the
Business Day after the Auction Date, the  transactions  described  above will be
executed  through the  Securities  Depository and the accounts of the respective
Agent  Members at the  Securities  Depository  will be debited and  credited and
shares  delivered as necessary to effect the  purchases and sales of shares of a
series of Preferred  Shares as determined in the Auction.  Purchasers  will make
payment  through  their  Agent  Members  in  same-day  funds  to the  Securities
Depository  against  delivery  through  their  Agent  Members;   the  Securities
Depository will make payment in accordance with its normal procedures, which now
provide for payment against delivery by their Agent Members in same-day funds.

                                      A-7

     If any Existing Holder selling shares of a series of Preferred Shares in an
Auction fails to deliver such shares,  the  Broker-Dealer of any person that was
to have  purchased  such  shares in such  Auction  may  deliver to such person a
number of whole  shares of such series that is less than the number of shares of
such series that  otherwise  was to be purchased by such person.  In such event,
the number of shares of such series to be so delivered  shall be  determined  by
such  Broker-Dealer.  Delivery  of such  lesser  number of shares of such series
shall constitute good delivery.

                         DESCRIPTION OF PREFERRED SHARES

     The  descriptions  of the  Preferred  Shares  contained  in this SAI do not
purport to be complete and are subject to and  qualified in their  entireties by
reference to the Declaration of Trust and the By-laws. Copies of the Declaration
of Trust and the By-laws are filed as exhibits to the registration  statement of
which the  Prospectus  and this SAI are a part and may be inspected,  and copies
thereof  may be  obtained,  as  described  under  "Further  Information"  in the
Prospectus.

GENERAL

     The Preferred  Shares will rank on a parity with each other and with shares
of any other series of Preferred  Shares as to the payment of dividends  and the
distribution  of assets  upon  dissolution,  liquidation  or  winding  up of the
affairs of the Trust.

DIVIDENDS AND DIVIDEND PERIODS

     GENERAL.  Holders of Preferred Shares will be entitled to receive, when, as
and if  declared  by the  Board  of  Trustees,  out of funds  legally  available
therefor,  cumulative  cash dividends on their shares,  at the  Applicable  Rate
determined as described under "--Determination of Dividend Rate," payable on the
respective  dates set forth below.  Dividends  so declared and payable  shall be
paid to the extent  permitted under the Code, and to the extent available and in
preference to and priority over any dividend  declared and payable on the Common
Shares.

     On the Business Day next preceding each Dividend Payment Date, the Trust is
required to deposit  with the Paying Agent  sufficient  funds for the payment of
declared dividends.  The Trust does not intend to establish any reserves for the
payment of dividends.

     Each dividend will be paid by the Paying Agent to the Holder,  which Holder
is expected  to be the  nominee of the  Securities  Depository.  The  Securities
Depository  will  credit the  accounts  of the Agent  Members of the  beneficial
owners in accordance with the Securities  Depository's  normal  procedures.  The
Securities   Depository's  current  procedures  provide  for  it  to  distribute
dividends  in  same-day  funds  to Agent  Members  who are in turn  expected  to
distribute such dividends to the persons for whom they are acting as agents. The
Agent Member of a beneficial owner will be responsible for holding or disbursing
such payments on the applicable  Dividend  Payment Date to such beneficial owner
in accordance with the instructions of such beneficial owner.

     Holders  will not be entitled to any  dividends,  whether  payable in cash,
property or shares,  in excess of full cumulative  dividends except as described
under "--Determination of Dividend Rate." No interest will be payable in respect
of any  dividend  payment or payments  which may be in arrears.  See  "--Default
Period."

     The amount of dividends per outstanding share payable (if declared) on each
Dividend  Payment  Date of each  Dividend  Period  of less  than one year (or in
respect of dividends on another date in connection with a redemption during such
Dividend  Period) shall be computed by multiplying  the Applicable  Rate (or the
Default Rate) for such Dividend Period (or a portion thereof) by a fraction, the

                                      A-8

numerator  of which  will be the  number  of days in such  Dividend  Period  (or
portion thereof) such share was outstanding and for which the Applicable Rate or
the  Default  Rate was  applicable  and the  denominator  of which  will be 360,
multiplying  the amount so obtained by the liquidation  value,  and rounding the
amount so obtained to the nearest cent.  During any Dividend  Period of one year
or more, the amount of dividends per share payable on any Dividend  Payment Date
(or in respect of  dividends  on another  date in  connection  with a redemption
during such  Dividend  Period)  shall be computed as described in the  preceding
sentence, except that it will be determined on the basis of a year consisting of
twelve 30-day months.

     DETERMINATION  OF DIVIDEND RATE. The dividend rate for the initial Dividend
Period (i.e.  the period from and  including  the Date of Original  Issue to and
including the initial Auction Date) and the initial Auction Date for each Series
are set forth on the cover page of the Prospectus.  For each subsequent Dividend
Period, subject to certain exceptions,  the dividend rate will be the Applicable
Rate that the Auction Agent advises the Trust has resulted from an Auction.

     Dividend Periods after the initial Dividend Period shall either be Standard
Rate  Periods  (generally  7 days) or,  subject to certain  conditions  and with
notice to Holders, Special Rate Periods.

     A Special Rate Period will not be effective unless Sufficient Clearing Bids
exist at the  Auction  in  respect  of such  Special  Rate  Period  (that is, in
general,  the number of shares subject to Bids by Potential Beneficial Owners is
at least  equal to the  number  of shares  subject  to Sell  Orders by  Existing
Holders).  If Sufficient Clearing Bids do not exist at any Auction in respect of
a Special  Rate  Period,  the  Dividend  Period  commencing  on the Business Day
succeeding such Auction will be the Standard Rate Period, and the Holders of the
shares of the  affected  series will be required to continue to hold such shares
for such Standard Rate Period.

     Dividends will  accumulate at the Applicable Rate from the Date of Original
Issue and shall be payable on each Dividend Payment Date  thereafter.  Dividends
will be paid through the Securities Depository on each Dividend Payment Date.

     The Applicable  Rate resulting from an Auction will not be greater than the
Maximum Rate. The Maximum Rate is subject to upward but not downward  adjustment
in the  discretion  of  the  Board  of  Trustees  after  consultation  with  the
Broker-Dealers,  provided that immediately following any such increase the Trust
would be in compliance with the Preferred Shares Basic Maintenance Amount.

     The  Maximum  Rate  for  the  Preferred  Shares  will  apply  automatically
following an Auction for such shares in which Sufficient  Clearing Bids have not
been made (other than  because all  Preferred  Shares were  subject to Submitted
Hold Orders) or  following  the failure to hold an Auction for any reason on the
Auction Date scheduled to occur (except for  circumstances in which the Dividend
Rate is the Default  Rate,  as  described  below).  The All Hold Rate will apply
automatically  following  an Auction in which all of the  Outstanding  Preferred
Shares for a particular Series are subject (or are deemed to be subject) to Hold
Orders.

     Prior to each Auction,  Broker-Dealers  will notify  Holders of the term of
the  next  succeeding   Dividend  Period  as  soon  as  practicable   after  the
Broker-Dealers  have been so advised by the Trust.  After each  Auction,  on the
Auction Date,  Broker-Dealers will notify Holders of the Applicable Rate for the
next  succeeding  Dividend Period and of the Auction Date of the next succeeding
Auction.

     NOTIFICATION OF DIVIDEND  PERIOD.  The Trust will designate the duration of
Dividend  Periods  of the  Preferred  Shares;  provided,  however,  that no such
designation is necessary for a Standard Rate Period and that any  designation of
a Special Rate Period shall be effective  only if (i) notice  thereof shall have
been given as provided  herein,  (ii) any failure to pay in the timely manner to
the Auction  Agent the full amount of any dividend on, or the  redemption  price
of, the  Preferred  Shares  shall have been cured as set forth under  "--Default

                                      A-9

Period," (iii) Sufficient Clearing Bids shall have existed in an Auction held on
the Auction Date  immediately  preceding the first day of such proposed  Special
Rate  Period,  (iv) if the Trust shall have mailed a notice of  redemption  with
respect to any shares, as described under  "--Redemption,"  the Redemption Price
with respect to such shares shall have been deposited with the Paying Agent, and
(v) the Trust has  confirmed  that,  as of the Auction Date next  preceding  the
first day of such Special Rate Period,  it has Eligible Assets with an aggregate
Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount
and has  consulted  with  the  Broker-Dealers  and  has  provided  notice  and a
Preferred  Shares Basic  Maintenance  Certificate to each Rating Agency which is
then rating the Preferred Shares and so requires.

     If the Trust proposes to designate any Special Rate Period,  not fewer than
7 Business  Days (or two Business  Days in the event the duration of the Special
Rate  Period is fewer than 8 days) nor more than 30  Business  Days prior to the
first day of such Special Rate Period, notice shall be (i) made by press release
and (ii)  communicated  by the Trust by telephonic or other means to the Auction
Agent and confirmed in writing promptly thereafter. Each such notice shall state
(A) that the Trust  proposes to exercise  its option to  designate a  succeeding
Special Rate Period, specifying the first and last days thereof and (B) that the
Trust will,  by 3:00 p.m.  New York City time,  on the second  Business Day next
preceding the first day of such Special Rate Period,  notify the Auction  Agent,
who will promptly notify the  Broker-Dealers,  of either (x) its  determination,
subject to certain  conditions,  to proceed with such  Special  Rate Period,  in
which  case  the  Trust  may  specify  the  terms  of  any  Specific  Redemption
Provisions,  or (y) its  determination  not to proceed  with such  Special  Rate
Period in which latter event the succeeding  Dividend Period shall be a Standard
Rate Period.

     No later than 3:00 p.m.,  New York City time,  on the second  Business  Day
next  preceding  the first day of any proposed  Special  Rate Period,  the Trust
shall  deliver  to  the  Auction  Agent,   who  will  promptly  deliver  to  the
Broker-Dealers and Existing Holders, either:

     (i)  a notice  stating (A) that the Trust has  determined  to designate the
          next succeeding  Dividend Period as a Special Rate Period,  specifying
          the  first  and last days  thereof  and (B) the terms of the  Specific
          Redemption Provisions, if any; or

     (ii) a notice  stating  that the Trust has  determined  not to exercise its
          option to designate a Special Rate Period.

     If the Trust  fails to  deliver  either  such  notice  with  respect to any
designation  of any  proposed  Special  Rate Period to the  Auction  Agent or is
unable to make the  confirmation  described  above by 3:00  p.m.,  New York City
time, on the second  Business Day next  preceding the first day of such proposed
Special Rate Period, the Trust shall be deemed to have delivered a notice to the
Auction  Agent with respect to such  Dividend  Period to the effect set forth in
clause (ii) above, thereby resulting in a Standard Rate Period.

     DEFAULT PERIOD. A "Default Period" with respect to a particular Series will
commence on any date the Trust fails to deposit irrevocably in trust in same-day
funds,  with the Paying  Agent by 12:00 noon,  New York City time,  (A) the full
amount of any declared  dividend on that Series payable on the Dividend  Payment
Date (a "Dividend  Default") or (B) the full amount of any redemption price (the
"Redemption  Price") payable on the date fixed for redemption  (the  "Redemption
Date") (a  "Redemption  Default")  and,  together with a Dividend  Default and a
Redemption Default, hereinafter referred to as "Default").

     A Default Period with respect to a Dividend Default or a Redemption Default
shall end on the Business Day on which,  by 12:00 noon,  New York City time, all
unpaid  dividends  and any unpaid  Redemption  Price  shall have been  deposited
irrevocably in trust in same-day funds with the Paying Agent.

     In the case of a Dividend Default, no Auction will be held during a Default
Period  applicable  to that  Series and the  Applicable  Rate for each  Dividend
Period commencing during a Default Period, will be equal to the Default Rate.

                                      A-10

     Each subsequent Dividend Period commencing after the beginning of a Default
Period shall be a Standard Rate Period; provided, however, that the commencement
of a Default Period will not by itself cause the  commencement of a new Dividend
Period.  No Auction  shall be held during a Default  Period  applicable  to that
Series.

     No Default Period with respect to a Dividend Default or Redemption  Default
shall be deemed to  commence  if the amount of any  dividend  or any  Redemption
Price due (if such  default  is not  solely  due to the  willful  failure of the
Trust) is  deposited  irrevocably  in trust,  in same-day  funds with the Paying
Agent by 12:00 noon,  New York City time within  three  Business  Days after the
applicable  Dividend  Payment Date or Redemption  Date,  together with an amount
equal to the Default Rate applied to the amount of such non-payment based on the
actual number of days  comprising  such period  divided by 360. The Default Rate
shall be equal to the Reference Rate multiplied by three (3).

RESTRICTIONS ON DIVIDENDS, REDEMPTION AND OTHER PAYMENTS

     Under the 1940 Act, the Trust may not (i) declare any dividend with respect
to the Preferred  Shares if, at the time of such  declaration  (and after giving
effect  thereto),  asset coverage with respect to the Trust's senior  securities
representing indebtedness,  including all outstanding senior indebtedness of the
Trust, including the Trust's obligations under any borrowing facility,  would be
less than 200% (or such other percentage as may in the future be specified in or
under  the  1940  Act  as the  minimum  asset  coverage  for  senior  securities
representing  stock  of  a  closed-end  investment  company  as a  condition  of
declaring   dividends  on  its  preferred  stock)  or  (ii)  declare  any  other
distribution on the Preferred  Shares or purchase or redeem  Preferred Shares if
at the time of the declaration (and after giving effect thereto), asset coverage
with respect to the Trust's senior securities representing indebtedness would be
less than 300% (or such higher  percentage  as may in the future be specified in
or under  the 1940 Act as the  minimum  asset  coverage  for  senior  securities
representing  stock  of  a  closed-end  investment  company  as a  condition  of
declaring  distributions,  purchases or  redemptions  of its capital  stock).  A
declaration of a dividend or other  distribution on or purchase or redemption of
Preferred  Shares  is  prohibited  unless  there is no event  of  default  under
indebtedness  senior to the Preferred Shares, if any, and immediately after such
transaction,  the Trust would have Eligible Assets with an aggregated Discounted
Value at least  equal to the  asset  coverage  requirements  under  indebtedness
senior to the Preferred Shares.

     For so long as the Preferred  Shares are  Outstanding,  except as otherwise
provided  in the  By-laws,  the  Trust  will not  declare,  pay or set apart for
payment  any  dividend  or  other   distribution   (other  than  a  dividend  or
distribution paid in shares of, or options,  warrants or rights to subscribe for
or purchase,  Common  Shares or other  shares,  ranking  junior to the Preferred
Shares as to dividends or upon liquidation) with respect to Common Shares or any
other shares of the Trust ranking junior to the Preferred Shares as to dividends
or upon  liquidation,  or call for  redemption,  redeem,  purchase or  otherwise
acquire for  consideration  any Common Shares or other shares  ranking junior to
the Preferred  Shares  (except by conversion  into or exchange for shares of the
Trust  ranking  junior  to  the  Preferred  Shares  as  to  dividends  and  upon
liquidation),  unless (i) immediately  after such  transaction,  the Trust would
have Eligible  Assets with an aggregate  Discounted  Value at least equal to the
Preferred  Shares Basic  Maintenance  Amount and the 1940 Act  Preferred  Shares
Asset Coverage would be achieved,  (ii) all cumulative and unpaid  dividends due
on or prior to the date of the  transaction  have been declared and paid in full
with respect to the Trust's  Preferred  Shares,  including the Preferred Shares,
and (iii) the Trust has redeemed the full number of Preferred Shares required to
be redeemed by any mandatory  provision for redemption  including  shares of the
Preferred  Shares  required  to be  redeemed  by  any  provision  for  mandatory
redemption contained in the By-laws.

     For so long as the Preferred Shares are Outstanding, except as set forth in
the next sentence,  the Trust will not declare,  pay or set apart for payment on
any series of shares of the Trust ranking, as to the payment of dividends,  on a
parity with the Preferred Shares for any period unless full cumulative dividends
have been or  contemporaneously  are declared and paid on the  Preferred  Shares
through their most recent Dividend  Payment Date. When dividends are not paid in

                                      A-11

full upon the Preferred  Shares through their most recent Dividend  Payment Date
or upon any other  series of shares  ranking  on a parity as to the  payment  of
dividends with Preferred  Shares through their most recent  respective  Dividend
Payment Dates,  all dividends  declared upon Preferred Shares and any other such
series of  shares  ranking  on a parity  as to the  payment  of  dividends  with
Preferred  Shares  shall be  declared  pro rata so that the amount of  dividends
declared per share on Preferred Shares and such other series of Preferred Shares
shall in all cases bear to each other the same ratio that accumulated  dividends
per share on the Preferred Shares and such other series of Preferred Shares bear
to each other.

REDEMPTION

     OPTIONAL  REDEMPTION.  To the  extent  permitted  under  the  1940  Act and
Massachusetts  law, the Trust at its option may redeem Preferred Shares having a
Dividend  Period  of one year or less,  in  whole  or in part,  on the  Dividend
Payment  Date  upon not  less  than 15 days'  and not more  than 40 days'  prior
notice. The optional redemption price per share shall be $25,000 per share, plus
an amount equal to  accumulated  but unpaid  dividends  thereon  (whether or not
earned or declared) to the date fixed for redemption.  Preferred Shares having a
Dividend Period of more than one year are redeemable at the option of the Trust,
in whole or in part, prior to the end of the relevant  Dividend Period,  subject
to any  Specific  Redemption  Provisions,  which  may  include  the  payment  of
redemption  premiums  to the  extent  required  under  any  applicable  Specific
Redemption Provisions. The Trust shall not effect any optional redemption unless
after  giving  effect  thereto  (i) the  Trust  has  available  certain  Deposit
Securities  with  maturity or tender dates not later than the day  preceding the
applicable  redemption  date  and  having  a value  not  less  than  the  amount
(including any applicable  premium) due to Holders of Preferred Shares by reason
of the redemption of Preferred  Shares on such date fixed for the redemption and
(ii) the Trust would have Eligible Assets with an aggregate  Discounted Value at
least equal to the Preferred Shares Basic Maintenance Amount.

     MANDATORY  REDEMPTION.  If the Trust fails as of any Valuation Date to meet
the Preferred Shares Basic  Maintenance  Amount Test or, as of the last Business
Day of any month, the 1940 Act Preferred Shares Asset Coverage, and such failure
is not cured within five Business Days following the relevant  Valuation Date in
the case of a failure to meet the Preferred Shares Basic Maintenance Amount Test
or the last Business Day of the following month in the case of a failure to meet
the 1940 Act  Preferred  Shares Asset  Coverage  (each an "Asset  Coverage  Cure
Date"),  the  Preferred  Shares will be subject to mandatory  redemption  out of
funds legally available therefor.  The number of Preferred Shares to be redeemed
in such  circumstances  will be equal to the lesser of (A) the minimum number of
Preferred Shares the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the relevant Asset Coverage Cure Date, would
result in the Trust meeting the Preferred Shares Basic Maintenance  Amount Test,
and the 1940 Act Preferred Shares Asset Coverage,  as the case may be, in either
case as of the relevant Asset Coverage Cure Date (provided  that, if there is no
such minimum  number of shares the  redemption  of which would have such result,
all Preferred  Shares then  Outstanding  will be redeemed),  and (B) the maximum
number of  Preferred  Shares  that can be redeemed  out of funds  expected to be
available therefor on the Mandatory  Redemption Date at the Mandatory Redemption
Price.

     Preferred Shares may be subject to mandatory  redemption in accordance with
the foregoing  redemption  provisions  notwithstanding the terms of any Specific
Redemption Provision.

     The Trust shall effect any required mandatory  redemption  pursuant to: (A)
the Preferred Shares Basic Maintenance  Amount Test, no later than 30 days after
the Trust last met the Preferred Shares Basic Maintenance Amount Test or (B) the
1940 Act Preferred Shares Asset Coverage,  no later than 30 days after the Asset
Coverage Cure Date (the "Mandatory  Redemption Date"),  except that if the Trust
does not have funds legally available for the redemption of, or is not otherwise
legally  permitted  to redeem,  all of the required  number of Preferred  Shares
which are subject to mandatory  redemption,  or the Trust otherwise is unable to
effect such redemption on or prior to such Mandatory  Redemption Date, the Trust
will redeem those Preferred Shares on the earliest practicable date on which the
Trust will have such funds available,  upon notice to record owners of Preferred
Shares and the Paying Agent. The Trust's ability to make a mandatory  redemption
may be limited by the provisions of the 1940 Act or Massachusetts law.

                                      A-12

     The  redemption  price per share in the event of any  mandatory  redemption
will be  $25,000  per  share,  plus an amount  equal to  accumulated  but unpaid
dividends  (whether or not earned or declared) to the date fixed for redemption,
plus (in the case of a  Dividend  Period of more  than one year) any  redemption
premium, if any, determined by the Board of Trustees after consultation with the
Broker-Dealers and set forth in any applicable  Specific  Redemption  Provisions
(the "Mandatory Redemption Price").

     REDEMPTION PROCEDURE.  Pursuant to Rule 23c-2 under the 1940 Act, the Trust
will file a notice of its  intention  to redeem with the SEC so as to provide at
least  the  minimum  notice  required  by such Rule or any  successor  provision
(notice currently must be filed with the SEC generally at least 30 days prior to
the  redemption  date).  The Auction  Agent will use its  reasonable  efforts to
provide  telephonic  notice  to each  Holder  of  Preferred  Shares  called  for
redemption not later than the close of business on the Business Day  immediately
following the Business Day on which the Auction Agent  determines  the shares to
be redeemed (or, during a Default Period with respect to such shares,  not later
than the close of business on the Business Day immediately  following the day on
which the Auction  Agent  receives  notice of redemption  from the Trust).  Such
telephonic notice will be confirmed promptly in writing not later than the close
of business on the third Business Day preceding the redemption date by providing
the notice sent by the Paying  Agent to each Holder of Preferred  Shares  called
for  redemption,  the Paying Agent (if different from the Auction Agent) and the
Securities  Depository  ("Notice of  Redemption").  Notice of Redemption will be
addressed to the registered  owners of the Preferred  Shares at their  addresses
appearing on the share records of the Trust.  Such notice will set forth (i) the
redemption  date,  (ii) the  number  and  identity  of  Preferred  Shares  to be
redeemed,  (iii) the  redemption  price  (specifying  the amount of  accumulated
dividends  to be  included  therein),  (iv) that  dividends  on the shares to be
redeemed will cease to accumulate on such redemption date, and (v) the provision
under which redemption shall be made.

     If fewer  than  all of the  shares  of a series  of  Preferred  Shares  are
redeemed on any date, the shares to be redeemed on such date will be selected by
the Trust on a pro rata basis in proportion to the number of shares held by such
Holders, by lot or by such other method as is determined by the Trust to be fair
and  equitable,  subject  to the terms of any  Specific  Redemption  Provisions.
Preferred  Shares may be subject to mandatory  redemption  as  described  herein
notwithstanding  the terms of any Specific  Redemption  Provisions.  The Auction
Agent will give notice to the Securities  Depository,  whose nominee will be the
Holder  of all of the  Preferred  Shares,  and the  Securities  Depository  will
determine  the  number of shares to be  redeemed  from the  account of the Agent
Member of each beneficial  owner. Each Agent Member will determine the number of
shares to be  redeemed  from the account of each  beneficial  owner for which it
acts as agent.  An Agent  Member  may  select  for  redemption  shares  from the
accounts of some beneficial  owners without  selecting for redemption any shares
from the accounts of other beneficial owners.  Notwithstanding the foregoing, if
neither  the  Securities  Depository  nor its  nominee  is  Holder of all of the
shares,  the particular  shares to be redeemed shall be selected by the Trust by
lot,  on a pro rata basis  between  each  series or by such other  method as the
Trust shall deem fair and equitable, as contemplated above.

     If Notice of  Redemption  has been  given,  then upon the  deposit of funds
sufficient to effect such redemption,  all rights of the owners of the shares so
called for redemption will cease,  except the right of the owners of such shares
to receive the redemption price, but without  interest,  and such shares will no
longer be deemed to be outstanding for any purpose.  The Trust shall be entitled
to receive from the Paying Agent,  promptly after the date fixed for redemption,
any  cash  deposited  with  the  Paying  Agent in  excess  of (i) the  aggregate
redemption  price of the Preferred Shares called for redemption on such date and
(ii) such other amounts, if any, to which Holders of Preferred Shares called for
redemption may be entitled.  The Trust will be entitled to receive, from time to
time, from the Paying Agent the interest, if any, earned on such funds deposited
with the Paying Agent and the owners of shares so redeemed will have no claim to
any such  interest.  Any funds so deposited  which are unclaimed two years after
such  redemption  date will be paid by the  Paying  Agent to the Trust  upon its
request;  provided,  however,  the Paying  Agent shall  notify all owners of the
shares whose funds are unclaimed by placing a notice in the Wall Street  Journal
concerning the availability of such funds for three consecutive weeks. Thereupon
the Paying  Agent will be relieved of all  responsibility  to the owners of such
shares and such owners may look only to the Trust for payment.

                                      A-13

     So long as any  Preferred  Shares are held of record by the  nominee of the
Securities Depository,  the redemption price for such shares will be paid on the
redemption  date to the nominee of the  Securities  Depository.  The  Securities
Depository's  normal  procedures  provide for it to distribute the amount of the
redemption  price to Agent Members who, in turn, are expected to distribute such
funds to the person for whom they are acting as agent.

     Notwithstanding the provisions for redemption described above, no Preferred
Shares may be  redeemed  at the  option of the Trust  unless  all  dividends  in
arrears on the outstanding  Preferred Shares, and all capital stock of the Trust
ranking on a parity with the  Preferred  Shares  with  respect to the payment of
dividends or upon liquidation,  have been or are being contemporaneously paid or
set aside for payment, except in connection with the liquidation of the Trust in
which case all  Preferred  Shares and all  shares  ranking in a parity  with the
Preferred Shares must receive proportionate amounts.

     Except for the provisions described above, nothing contained in the By-laws
limits  any legal  right of the  Trust to  purchase  or  otherwise  acquire  any
Preferred  Shares  outside of an Auction at any price,  whether  higher or lower
than the price that would be paid in  connection  with an optional or  mandatory
redemption,  so long as, at the time of any such purchase, there is no arrearage
in the payment of dividends on or the  mandatory  or optional  redemption  price
with respect to, any Preferred  Shares for which Notice of  Redemption  has been
given and the Trust is in compliance  with the 1940 Act  Preferred  Shares Asset
Coverage and has Eligible  Assets with an  aggregate  Discounted  Value at least
equal to the Preferred  Shares Basic  Maintenance  Amount after giving effect to
such  purchase  or  acquisition  on the  date  thereof.  Any  shares  which  are
purchased,  redeemed  or  otherwise  acquired  by the Trust shall have no voting
rights.  If fewer than all the  outstanding  Preferred  Shares are  redeemed  or
otherwise acquired by the Trust, the Trust shall give notice of such transaction
to the Auction Agent, in accordance with the procedures agreed upon by the Board
of Trustees.

ASSET MAINTENANCE

     The  Trust  is  required  to  satisfy  two   separate   asset   maintenance
requirements  in respect of the  Preferred  Shares:  (1) the Trust must maintain
assets in its portfolio  that have a value,  discounted  in accordance  with the
Rating Agency Guidelines, at least equal to the aggregate liquidation preference
of the Preferred  Shares plus specified  liabilities,  payment  obligations  and
other  amounts;  and (ii) the Trust must maintain  asset  coverage for Preferred
Shares of at least 200%.

     PREFERRED SHARES BASIC MAINTENANCE AMOUNT. The Trust will be required under
Rating  Agency  Guidelines  to  maintain,  as of each  Business Day on which the
Preferred  Shares are  outstanding,  assets having in the aggregate a Discounted
Value  at  least  equal  to  the  Preferred  Shares  Basic  Maintenance   Amount
established  by the rating agency or agencies then rating the Preferred  Shares.
If the  Trust  fails to meet such  requirement  on any  Valuation  Date and such
failure is not cured by the Asset Coverage Cure Date, the Trust will be required
under certain circumstances to redeem certain of the Preferred Shares.

     The "Preferred Shares Basic Maintenance Amount" as of any Valuation Date is
defined as the dollar amount equal to the sum of:

     (i)  (A) the sum of the products  resulting from  multiplying the number of
          Outstanding  shares of each Series of Preferred Shares on such date by
          the Liquidation Preference per share of such Series; (B) the aggregate
          amount of dividends that will have  accumulated at the Applicable Rate
          (whether  or not  earned  or  declared)  to and  including  the  first
          Dividend  Payment  Date  for each  Outstanding  Preferred  Share  that
          follows such  Valuation  Date (or to the 30th day after such Valuation
          Date,  if such 30th day  occurs  before the first  following  Dividend
          Payment  Date);  (C) the  amount  of  anticipated  Trust  non-interest

                                      A-14

          expenses for 90 days subsequent to such Valuation Date; (D) the amount
          of current outstanding balances of any indebtedness which is senior to
          the Preferred  Shares plus  interest  actually  accrued  together with
          additional interest on the current outstanding  balances calculated at
          the  current  rate  multiplied  by  1.93  and (E)  any  other  current
          liabilities  payable  during the 30 days  subsequent to such Valuation
          Date, including,  without limitation,  any indebtedness service to the
          Preferred  Shares  and  indebtedness  due  within  one  year  and  any
          redemption  premium due with respect to  Preferred  Shares for which a
          Notice of Redemption has been given,  as of such Valuation Date to the
          extent reflected in any of (i)(A) through (i)(D): less

     (ii) the sum of any cash  plus the value of any  Trust  assets  irrevocably
          deposited  by the Trust  for  payment  of any  (i)(B)  through  (i)(E)
          (except that if the security matures prior to the relevant  redemption
          payment date and is either fully guaranteed by the U.S.  Government or
          is rated P1 by  Moody's  and  A+/A-1 by S&P,  it will be valued at its
          face value).

     The Advance Rates,  the criteria used to determine  whether the assets held
in the Trust's portfolio are Eligible Assets, and guidelines for determining the
market  value of the Trust's  portfolio  holdings  for  purposes of  determining
compliance with the Preferred Shares Basic  Maintenance  Amount are based on the
criteria  established in connection  with the rating the Preferred  Shares.  The
Moody's  Advance Rate relating to any asset of the Trust,  the Preferred  Shares
Basic Maintenance  Amount,  the assets eligible for inclusion in the calculation
of the Moody's Advance Rate of the Trust's portfolio and certain definitions and
methods of calculation  relating thereto may be changed from time to time by the
Trust, without shareholder  approval,  but only in event that the Trust receives
written  confirmation  from Moody's and which so requires  that any such changes
would not impair the "aaa" credit rating from Moody's.

     A Rating  Agency's  Guidelines  will apply to the Preferred  Shares only so
long as such  Rating  Agency is rating such  shares.  The Trust will pay certain
fees to  Moody's  for rating the  Preferred  Shares.  The  ratings  assigned  to
Preferred Shares are not  recommendations to buy, sell or hold Preferred Shares.
Such ratings may be subject to revision or withdrawal  by the  assigning  Rating
Agency  at any  time.  Any  rating  of  Preferred  Shares  should  be  evaluated
independently of any other rating.

     Upon any failure to maintain the required  Discounted  Value of the Trust's
Eligible  Assets,  the Trust will seek to alter the composition of its portfolio
to reattain the  Preferred  Shares Basic  Maintenance  Amount on or prior to the
Preferred  Shares Basic  Maintenance  Cure Date,  thereby  incurring  additional
transaction  costs and possible losses and/or gains on dispositions of portfolio
securities.

     1940 ACT  PREFERRED  SHARES ASSET  COVERAGE.  The Trust is also required to
maintain, as of the last Business Day on any month in which the Preferred Shares
are  outstanding,  asset coverage of at least 200% (or such other  percentage as
may in the future be  specified  in or under the 1940 Act as the  minimum  asset

                                      A-15

coverage for senior securities  representing shares of a closed-end company as a
condition of declaring  dividends on its common  shares).  If the Trust fails to
maintain the 1940 Act  Preferred  Shares Asset  Coverage as of the last Business
Day of any month and such failure is not cured as of the related Asset  Coverage
Cure Date, the Trust will be required to redeem certain Preferred Shares.

     NOTICES.  The Trust must deliver to the Auction Agent and the Rating Agency
a 1940 Act  Preferred  Shares  Asset  Coverage  Certificate  which  sets forth a
determination  of (i) the Market Value of each Eligible Asset owned by the Trust
on that date,  (ii) the  Discounted  Value of each such  Eligible  Asset,  (iii)
whether the Preferred Shares Basic Maintenance  Amount Test is met as of (A) the
Date of Original Issue,  (B) the last Valuation Date of each month, (C) any date
requested  by any  Rating  Agency,  (D) a  Business  Day on or before  any Asset
Coverage  Cure  Date  relating  to the  Trust's  cure of a  failure  to meet the
Preferred Shares Basic  Maintenance  Amount Test, and (E) on any day that Common
or Preferred  Shares are  redeemed.  Such  Preferred  Shares  Basic  Maintenance
Certificate  shall be  delivered  in the case of clause (A) above on the Date of
Original  Issue and in the case of all  other  clauses  above on or  before  the
seventh  Business Day after the relevant  Valuation  Date or Asset Coverage Cure
Date.

     The Trust is  required  to deliver  to the  Auction  Agent,  and the Rating
Agency a certificate  which sets forth a determination of (i) the value (as used
in the 1940 Act) of the total assets of the Trust, less all liabilities and (ii)
whether the 1940 Act Preferred  Shares Asset  Coverage is met as of that date (a
"1940 Act Preferred  Shares Asset Coverage  Certificate")  as of (A) the Date of
Original Issue, (B) the last Valuation Date of each quarter thereafter and (C) a
Business Day on or before any Asset  Coverage  Cure Date relating to the failure
to meet the 1940 Act Preferred  Shares Asset  Coverage.  Such 1940 Act Preferred
Shares Asset Coverage  Certificate  shall be delivered in the case of clause (A)
above on the Date of Original Issue and in the case of clauses (B) and (C) above
on or before the seventh  Business Day after the relevant  Valuation Date or the
Asset Coverage Cure Date.

     Within ten  Business  Days of the Date of Original  Issue,  the Trust shall
deliver to the Auction Agent and Moody's an Auditor's  Certificate regarding the
accuracy of the  calculations  made by the Trust in the  Preferred  Shares Basic
Maintenance  Certificate  and the  1940  Act  Preferred  Shares  Asset  Coverage
Certificate required to be delivered by the Trust on the Date of Original Issue.
Within  ten  Business  Days  after  delivery  of  the  Preferred   Shares  Basic
Maintenance  Certificate  and the  1940  Act  Preferred  Shares  Asset  Coverage
Certificate  relating to the last  Valuation  Date of each fiscal quarter of the
Trust,  the Trust will  deliver to the Auction  Agent and  Moody's an  Auditor's
Certificate regarding the accuracy of the calculations made by the Trust in such
Certificates  and in one other Preferred  Shares Basic  Maintenance  Certificate
randomly  selected  by the  Trust's  independent  auditors  during  such  fiscal
quarter.  In addition,  the Trust will  deliver to the persons  specified in the
preceding  sentence  an  Auditor's  Certificate  regarding  the  accuracy of the
calculations  made by the  Trust  on each  Preferred  Shares  Basic  Maintenance
Certificate and 1940 Act Preferred Shares Asset Coverage  Certificate  delivered
in relation to an Asset  Coverage  Cure Date within ten days after the  relevant
Asset  Coverage Cure Date. If an Auditor's  Certificate  shows that an error was
made in any such report,  the calculation or  determination  made by the Trust's
independent  auditors will be conclusive and binding on the Trust. The Auditor's
Certificate  will  confirm,  based  upon  the  independent  auditors  review  of
portfolio  data  provided  by the Trust,  (i) the  mathematical  accuracy of the
calculations  reflected in the related Preferred Shares Basic Maintenance Amount
Certificates,  the 1940 Act Preferred Shares Asset Coverage  Certificates,  (ii)
that, based upon such  calculations,  the Trust had, at such Valuation Date, met
the Preferred Shares Basic Maintenance Amount Test, and (iii) that the Trust met
Moody's General Portfolio Requirements.

VOTING

     All voting rights (as described in the  Prospectus  under  "Description  of
Capital  Structure" and "Description of Preferred Shares --Voting  Rights") will
not apply with  respect to  Preferred  Shares if, at or prior to the time when a
vote is  required,  such  shares  have  been (i)  redeemed  or (ii)  called  for
redemption  and  sufficient  funds have been  deposited  in trust to effect such
redemption.

                                      A-16

     The Board of Trustees may without  shareholder  approval,  amend,  alter or
repeal any or all of the  definitions  and  related  provisions  required  to be
contained  in the  By-laws or  Declaration  of Trust by Moody's in the event the
Trust  receives  written  confirmation  from  Moody's  that any such  amendment,
alteration  or repeal would not impair the ratings  then  assigned by Moody's to
the Preferred Shares.

RESTRICTIONS ON TRANSFER

     Preferred Shares may be transferred only (a) pursuant to an Order placed in
an  Auction,  (b) to or  through  a  Broker-Dealer,  or (c) to the  Trust or any
Affiliate.  Notwithstanding the foregoing,  a transfer other than pursuant to an
Auction will not be effective  unless the selling  Existing  Holder or the Agent
Member of such Existing  Holder,  in the case of an Existing Holder whose shares
are  listed  in  its  own  name  on  the  books  of the  Auction  Agent,  or the
Broker-Dealer or Agent Member of such  Broker-Dealer,  in the case of a transfer
between  persons  holding  Preferred  Shares through  different  Broker-Dealers,
advises the Auction Agent of such transfer.

                               MOODY'S GUIDELINES

     The  descriptions  of the Moody's  Guidelines  contained in this SAI do not
purport to be complete and are subject to and  qualified in their  entireties by
reference  to the  By-laws.  A copy of the By-laws is filed as an exhibit to the
registration  statement of which the  prospectus and this SAI are a part and may
be inspected,  and copies thereof may be obtained,  as described  under "Further
Information" in the prospectus.

GENERAL

     The composition of the Trust's portfolio  reflects Rating Agency Guidelines
established  by Moody's in  connection  with the Trust's  receipt of a rating of
"aaa" from Moody's for the  Preferred  Shares.  These Rating  Agency  Guidelines
relate,  among other things, to industry and credit quality  characteristics  of
issuers and specify various Advance Rates for debt securities.

     The Rating Agency Guidelines  require that the Trust maintain assets having
an aggregate Discounted Value greater than the aggregate liquidation  preference
of the Preferred  Shares plus specified  liabilities,  payment  obligations  and
other amounts, as of periodic Valuation Dates. The Rating Agency Guidelines also
require the Trust to  maintain  asset  coverage  for the  Preferred  Shares on a
non-discounted  basis of at least 200% as of the end of each month, and the 1940
Act requires  such asset  coverage as a condition  to paying  dividends or other
distributions  on Common Stock.  See  "Description  of Preferred  Shares - Asset
Maintenance." The Rating Agency  Guidelines also impose certain  diversification
requirements on the Trust's overall portfolio.

     The Trust intends to maintain,  at specified  times, a Discounted Value for
its portfolio at least equal to the Preferred Shares Basic  Maintenance  Amount,
the  determination  of which is as set forth  under  "Description  of  Preferred
Shares -- Asset Maintenance." Moody's has established guidelines for determining
Discounted  Value.  To the  extent any  particular  portfolio  holding  does not
satisfy Moody's Guidelines, all or a portion of such holding's value will not be
included in the calculation of Discounted Value (as defined by Moody's.).

     For purposes of calculating the Discounted  Value of the Trust's  portfolio
under  current  Rating  Agency  Guidelines,  the fair market  value of portfolio
securities eligible for consideration  under such guidelines  ("Moody's Eligible
Assets") must be discounted by certain  advance rates set forth below  ("Moody's
Advance Rates").  The Discounted Value of a portfolio  security under the Rating
Agency  Guidelines  is the Market  Value  thereof,  determined  as  specified by
Moody's, multiplied by the Moody's Advance Rate.

                                      A-17

     As described by Moody's,  an issue of preferred  stock which is rated "aaa"
is considered to be top-quality  preferred stock with good asset  protection and
the least risk of dividend impairment within the universe of preferred stocks. A
Moody's credit rating of preferred  stock does not address the likelihood that a
resale mechanism (e.g., the Auction) will be successful.

     Ratings are not recommendations to purchase, hold or sell Preferred Shares,
inasmuch as the rating does not comment as to market price or suitability  for a
particular  investor.  The rating is based on current  information  furnished to
Moody's by the Trust and obtained by Moody's from other sources.  The rating may
be changed,  suspended or withdrawn as a result of changes in, or unavailability
of, such information.

MOODY'S GUIDELINES

     The Trust's portfolio must meet the following diversification  requirements
("Moody's General Portfolio Requirements"):

     (a)  no more  than 25% by par  value of the  Trust's  total  assets  can be
          invested in the securities of borrowers and other issuers having their
          principal   business   activities   in  the  same   Moody's   Industry
          Classification;  provided,  that this limitation  shall not apply with
          respect to U.S.  Government  Securities and provided  further that for
          purposes of this subsection (a), the term "issuer" shall not include a
          lender  selling  a  participation  to the  Trust or any  other  person
          interpositioned  between  such lender and the Trust with  respect to a
          participation and

     (b)  no more  than 10% by par  value of the  Trust's  total  assets  can be
          invested in securities of a single issuer,  and provided  further that
          for purposes of this subsection  (b), the term "issuer"  includes both
          the  borrower  under  a  loan  agreement  and  the  lender  selling  a
          participation   to  the  Trust   together   with  any  other   persons
          interpositioned between such lender and the Trust with respect to such
          participation.

     So  long  as the  Trust's  portfolio  complies  with  the  Moody's  General
Portfolio  Requirements,  the Moody's Advance Rate is the percentage  determined
below:

          (i)  Loans: for each Moody's Asset Category,  the percentage specified
               in the table below opposite such Moody's Asset Category.

                Moody's Asset Category              Advance Rate
                ----------------------              ------------
                          A                            84.5%
                          B                            73%
                          C                            62%
                          D                            45%
                          E                            45%

               Loans rated by S&P but not Moody's  that do not exceed 10% of the
               Trust's  Total  Assets  shall be treated  the same as Loans rated
               solely by Moody's.  For all unrated  Loans and Loans rated solely
               by S&P that  exceed 10% of the Trust's  total  assets the Advance
               Rate shall be reduced by 10%;  provided,  however,  no  reduction
               will occur if the Loan does not have a market value price and has
               received a category change  pursuant to the definition  contained
               in "Moody's Eligible Assets" below.

                                      A-18

          (ii) Bonds:  the  percentage  specified  in the table below based upon
               remaining  maturity  of the  Bond  and  the  rating  assigned  by
               Moody's:

          Maturity
           Years     Aaa   Aa    A    Baa   Ba     B    Caa   Unrated  Below Caa
          ----------------------------------------------------------------------
             1       92%   89%  87%   85%   84%   80%   49%     44%        44%
          ----------------------------------------------------------------------
             2       87%   85%  82%   80%   79%   75%   49%     44%        44%
          ----------------------------------------------------------------------
             3       83%   81%  79%   76%   75%   71%   49%     44%        44%
          ----------------------------------------------------------------------
             4       79%   78%  75%   72%   71%   68%   49%     44%        44%
          ----------------------------------------------------------------------
             5       76%   74%  72%   69%   68%   65%   49%     44%        44%
          ----------------------------------------------------------------------
             7       72%   70%  68%   66%   64%   61%   49%     44%        44%
          ----------------------------------------------------------------------
             10      69%   67%  65%   63%   61%   58%   49%     44%        44%
          ----------------------------------------------------------------------
             15      67%   65%  63%   61%   59%   56%   49%     44%        44%
          ----------------------------------------------------------------------
             20      67%   65%  63%   61%   59%   53%   49%     44%        44%
          ----------------------------------------------------------------------
             30      67%   65%  63%   61%   59%   52%   49%     44%        44%
          ----------------------------------------------------------------------

               Unrated  bonds are limited to 5% of the Trust's  total assets and
               must meet the following conditions:  the issuer must (i) not have
               filed for bankruptcy within the past three years, (ii) be current
               on  all   principal   and  interest   payments  on   fixed-income
               obligations;  (iii) be current on all preferred stock  dividends;
               and (iv) possess a current,  unqualified auditor's report without
               qualified,  explanatory language. If a Bond is unrated by Moody's
               but is rated by S&P, then a rating two numeric  ratings below the
               S&P  rating  will be used  (e.g.  where the S&P  rating is AAA, a
               Moody's rating of Aa2 will be used;  where the S&P rating is AA+,
               a Moody's rating of Aa3 will be used).

          (iii)Structured  Notes:  68%  provided  the  security is rated Baa3 or
               higher by Moody's, otherwise 51%.

          (iv) Investment Company  Securities:  84.5%,  provided that the issuer
               invests at least 65% of its total assets in Loans  (under  normal
               market conditions).

          (v)  Equity Assets: 66%.

          (vi) Short Term Money  Market  Instruments:  (A) 97%,  so long as such
               investments  mature or have a demand  feature at par  exercisable
               within 30 days,  (B) 90%, so long as such  investments  mature or
               have a demand feature at par not exercisable  within 30 days, and
               (C) 83%, if such securities are not rated by Moody's,  so long as
               such  investments are rated at least A-2/AA or SP-2/AA by S&P and
               mature  or have a demand  feature  at par  exercisable  within 30
               days.

          (vii) Cash: 100%.

     Any  derivative  instruments  contributing  an  outstanding  obligation  or
entitlement  shall  have an  Advance  Rate  applied  in the same  amount  as the
underlying  security to which it relates,  either as an additional asset or as a
reduction in assets, as the case may be.

     Moody's  Asset  Category  means the following  five  categories  (and,  for
purposes of this  categorization,  the Market Value Price of a Moody's  Eligible
Asset trading at par is equal to $1.00).

     (a)  Moody's Asset Category A1 means  Performing  Senior Loans which have a
          Market Value Price or an Approved Price greater than or equal to $.90.

                                      A-19

     (b)  Moody's Asset Category B means:

          (i)  Performing  Senior  Loans  which have a Market  Value Price or an
               Approved  Price of  greater  than or equal to $.80 but less  than
               $.90; and

          (ii) Non-Performing Senior Loans which have a Market Value Price or an
               Approved Price greater than or equal to $.85.

     (c)  Moody's Asset Category C means:

          (i)  Performing  Senior  Loans  which have a Market  Value Price or an
               Approved  Price greater than or equal to $.70 but less than $.80;
               and

          (ii) Non-Performing Senior Loans which have a Market Value Price or an
               Approved Price greater than or equal to $.75 but less than $.85.

     (d)  Moody's  Asset  Category D means  Senior  Loans and bonds which have a
          Market Value Price or an Approved Price less than $.75.

     (e)  Moody's Asset  Category E means  Non-Senior  Loans which have a Market
          Value Price or an Approved Price.

     Notwithstanding  any other  provision  contained  above,  for  purposes  of
determining  whether a Moody's  Eligible  Asset falls within a specific  Moody's
Asset Category, to the extent that any Moody's Eligible Asset would fall in more
than one of the Moody's Asset  Categories,  such Moody's Eligible Asset shall be
deemed to fall into the  Moody's  Asset  Category  with the  highest  applicable
Moody's Advance Rate.

     Moody's Eligible Assets include the following:

          (i)  Senior Loans and Bonds; provided,  however, that (a) Senior Loans
               with an Approved  Price (but no Market  Value Price) will qualify
               as  Moody's  Eligible  Assets  only up to a maximum of 15% of the
               Trust's total  assets,  and such Senior Loans  constituting  more
               than 10% of the Trust's  total assets will apply a Moody's  Asset
               Category one category below that which would  otherwise apply for
               purposes of  determining  the Advance Rate;  and (b) Senior Loans
               under Moody's Asset  Category D will qualify as Moody's  Eligible
               Assets only up to a maximum of 20% of the Trust's total assets;

          (ii) Non-Senior Loans;  provided,  however, that Non-Senior Loans will
               qualify as Moody's Eligible Assets only up to a maximum of 10% of
               the Trust's total assets;

          (iii)Bonds,   Structured  Notes,   Equity  Securities  and  Investment
               Company Securities;  provided,  however,  that such securities do
               not exceed 20% of the Trust's total assets;

          (iv) Short-Term   Money  Market   Instruments  so  long  as  (a)  such
               securities  are  rated at least  P-2,  (b) in the case of  demand
               deposits, time deposits,  banker's acceptances and certificate of
               deposit and overnight  funds,  the supporting  entity is rated at
               least A2, (c) such securities are U.S. Government Securities,  or
               (d) in all other cases, the supporting entity (1) is rated A2 and
               the security  matures  within one month,  (2) is rated A2 and the
               security matures within three months or (3) is rated at least Aa3
               and the security matures within six months; and

                                      A-20

          (v)  Cash.

     In addition, for so long as any of the Preferred Shares are Outstanding and
Moody's so requires:

     (a)  the Trust will not, unless it has received written  confirmation  from
          such Rating  Agency  that any such action  would not impair the rating
          then assigned by Moody's to the Preferred Shares, engage in any one or
          more of the following transactions:

          (i)  purchase  or sell  futures  contracts  or  options  thereon  with
               respect to portfolio  securities  or write put or call options on
               portfolio  securities if the aggregate  national amount exceeds 2
               1/2% of the Trust's total assets;

          (ii) except in connection with a refinancing of the Preferred  Shares,
               issue  additional  shares  of any  series  of  Preferred  Shares,
               including any Series or reissue any Preferred  Shares,  including
               any Series previously purchased or redeemed by the Trust;

          (iii) engage in any short sales of securities;

          (iv) lend portfolio securities;

          (v)  merge or consolidate into or with any other corporation;

          (vi) engage in any reverse  repurchase  agreement or forms of leverage
               for hedging purposes if the aggregate national amount exceeds 10%
               of the Trust's  total  assets or engage in forms of leverage  for
               non-hedging; or

          (vii)change the  Pricing  Service to a service  other than an Approved
               Pricing Service.

     (b)  The Trust has also agreed

          (i)  no less frequently than  semi-annually,  the Trust's  independent
               auditors  shall verify the pricing of at least 25% of the Moody's
               Eligible  Assets and provide to Moody's a letter  describing  the
               results of such verification.  For the purposes of this item (i),
               "verify"  shall  mean that the  independent  auditors  agreed the
               prices  reported by the Trust to the prices received by the Trust
               from an Approved Pricing Service; and

          (ii) the Trust shall notify  Moody's if, on any  Valuation  Date,  the
               aggregate Discounted Value of the Moody's Eligible Assets is less
               than 125% of the Preferred Shares Basic Maintenance Amount.

                                      A-21

                              APPENDIX B: GLOSSARY

     "`AA' Financial Composite  Commercial Paper Rate" on any date means (i) the
interest equivalent of the 7-day rate, in the case of a Dividend Period which is
a Standard Rate Period or shorter;  for Dividend Periods greater than 7 days but
fewer than or equal to 31 days,  the 30-day rate; for Dividend  Periods  greater
than 31 days but fewer than or equal to 61 days,  the 60-day rate;  for Dividend
Periods  greater  than 61 days but  fewer  than or equal to 91 days,  the 90 day
rate; for Dividend  Periods  greater than 91 days but fewer than or equal to 270
days, the rate described in (ii);  for Dividend  Periods  greater than 270 days,
the  Treasury  Index  Rate;  on  commercial  paper on  behalf of  issuers  whose
corporate  bonds are rated  "AA" by S&P,  or the  equivalent  of such  rating by
another nationally recognized rating agency, as announced by the Federal Reserve
Bank of New York for the  close of  business  on the  Business  Day  immediately
preceding  such date;  or (ii) if the Federal  Reserve Bank of New York does not
make  available  such a  rate,  then  the  arithmetic  average  of the  interest
equivalent of such rates on  commercial  paper placed on behalf of such issuers,
as quoted on a discount  basis or otherwise by the  Commercial  Paper Dealers to
the  Auction  Agent for the close of business on the  Business  Day  immediately
preceding  such date (rounded to the next highest .001 of 1%). If any Commercial
Paper  Dealer does not quote a rate  required to  determine  the "AA"  Financial
Composite  Commercial  Paper Rate, such rate shall be determined on the basis of
the  quotations  (or  quotation)  furnished by the  remaining  Commercial  Paper
Dealers (or Dealer),  if any, or, if there are no such Commercial Paper Dealers,
by the Auction Agent.  For purposes of this  definition,  (A) "Commercial  Paper
Dealers" shall mean (1) Salomon Smith Barney Inc., Lehman Brothers Inc., Merrill
Lynch, Pierce,  Fenner & Smith Incorporated and Goldman Sachs & Co.; (2) in lieu
of any thereof, its respective Affiliate or successor; and (3) in the event that
any of the foregoing shall cease to quote rates for commercial  paper of issuers
of the sort described above, in substitution  therefor, a nationally  recognized
dealer in commercial paper of such issuers then making such quotations  selected
by the Trust, and (B) "interest equivalent" of a rate stated on a discount basis
for  commercial  paper of a given number of days'  maturity  shall mean a number
equal to the quotient  (rounded upward to the next higher  one-thousandth of 1%)
of (1) such rate expressed as a decimal,  divided by (2) the difference  between
(x) 1.00 and (y) a fraction, the numerator of which shall be the product of such
rate  expressed  as a  decimal,  multiplied  by the number of days in which such
commercial paper shall mature and the denominator of which shall be 365.

     "Advance Rate" means the Moody's Advance Rate.

     "Affiliate"  means any person known to the Auction  Agent to be  controlled
by, in control of or under common  control with the Trust;  provided  that Eaton
Vance  Management  shall  not  be  deemed  to  be an  Affiliate  nor  shall  any
corporation  or any person  controlled by, in control of or under common control
with such entity, one of the trustees,  directors or executive officers of which
is also a trustee,  director or executive  officer of the Trust, be deemed to be
an Affiliate.

     "Agent  Member"  means  a  member  of or a  participant  in the  Securities
Depository that will act on behalf of a Bidder.

     "All Hold Rate" means 80% of the "AA" Financial Composite  Commercial Paper
Rate.

     "Applicable  Rate"  means,  with  respect to each Series for each  Dividend
Period  (i) if  Sufficient  Clearing  Orders  exist for the  Auction  in respect
thereof,  the Winning Bid Rate, (ii) if Sufficient  Clearing Orders do not exist
for the Auction in respect thereof, the Maximum Rate.

     "Approved  Price"  means the "fair  value"  as  determined  by the Trust in
accordance with the valuation  procedures adopted from time to time by the Board
of Trustees.

     "Approved Pricing Service" means for Senior Loans Loan Pricing  Corporation
or any other quotation service  designated in writing by the Trust provided that
no Rating Agency has objected, in its reasonable  discretion,  in writing to the
Trust within ten business days of receipt of the Trust's  written  notice of the
designation of such quotation service.

                                      B-1

     "Asset  Coverage  Cure Date" has the meaning set forth in  "Description  of
Preferred Shares -- Redemption."

     "Auction" means each periodic operation of the Auction Procedures.

     "Auction  Agent"  means  Bankers  Trust  Company  unless and until  another
commercial bank, trust company,  or other financial  institution  appointed by a
resolution of the Board of Trustees  enters into an agreement  with the Trust to
follow the Auction  Procedures  for the purpose of  determining  the  Applicable
Rate.

     "Auction Date" means the first Business Day next preceding the first day of
a Dividend Period for each Series.

     "Auction   Procedures"  means  the  procedures   described  in  "Additional
Information  Concerning  the Auction for  Preferred  Shares" and the  procedures
described in Part II of the By-laws.

     "Auditor's  Certificate"  has the  meaning  set  forth in  "Description  of
Preferred Shares -- Asset Maintenance."

     "Available  Preferred  Shares"  has the  meaning  set  forth in  Additional
Information  Concerning  the Auction For Preferred  Shares --  Determination  of
Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate.

     "Beneficial Owner," with respect to shares of each Series, means a customer
of a Broker-Dealer  who is listed on the records of that  Broker-Dealer  (or, if
applicable, the Auction Agent) as a holder of shares of such series.

     "Bid" has the  meaning  set forth  Additional  Information  Concerning  the
Auction  for  Preferred  Shares --  Submission  of Orders by  Broker-Dealers  to
Auction Agents."

     "Bidder" has the meaning set forth in Additional Information Concerning the
Auction  for  Preferred  Shares --  Submission  of Orders by  Broker-Dealers  to
Auction Agents."

     "Board of  Trustees"  means the Board of  Trustees of the Trust or any duly
authorized committee thereof as permitted by applicable law.

     "Bonds" means corporate debt securities and U.S. government and U.S. dollar
denominated  foreign  government or supranational  debt  securities,  other than
Short-Term Money Market Instruments.

     "Broker-Dealer" means any broker-dealer or broker-dealers,  or other entity
permitted by law to perform the  functions  required of a  Broker-Dealer  by the
Auction  Procedures,  that has been selected by the Trust and has entered into a
Broker-Dealer Agreement that remains effective.

     "Broker-Dealer  Agreement" means an agreement between the Auction Agent and
a  Broker-Dealer,  pursuant  to which  such  Broker-Dealer  agrees to follow the
Auction Procedures.

     "Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a  Saturday,  Sunday or other day on which banks in The
City of New York, New York are authorized or obligated by law to close.

     "By-laws"  means the Second  Amended  By-laws of the Trust,  dated June 18,
2001, specifying the powers, preferences and rights of Preferred Shares.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Commission" means the Securities and Exchange Commission.

                                      B-2

     "Common Share" means the shares of beneficial interest,  par value $.01 per
share, of the Trust.

     "Date of  Original  Issue"  means the date on which a Series is  originally
issued by the Trust.

     "Declaration  of Trust" means the Agreement and  Declaration  of Trust,  as
amended.

     "Default  Period" has the meaning set forth in  "Description  of  Preferred
Shares -- Dividends and Dividend Period."

     "Default Rate" means the Reference Rate multiplied by three (3).

     "Deposit   Securities"  means  cash  and  any  obligations  or  securities,
including Short Term Money Market Instruments that are Eligible Assets, rated at
least  AAA,  A-1+ or  SP-1+  by S&P,  except  that,  for  purposes  of  optional
redemption  such  obligations  or  securities   shall  be  considered   "Deposit
Securities" only if they are also rated at least P-1 by Moody's.

     "Discounted  Value"  means the product of the Market  Value  (plus  accrued
interest) of an Eligible Asset multiplied by the applicable Advance Rate.

     "Dividend  Default" has the meaning set forth in  "Description of Preferred
Shares -- Dividends and Dividend Period."

     "Dividend  Payment  Date" means (i) with respect to any Dividend  Period of
one year or less, the Business Day next  succeeding the last day thereof and, if
any,  the 91st,  181st and 271st  days  thereof,  and (ii) with  respect  to any
Dividend  Period of more than one year, on a quarterly  basis on each January 1,
April 1, July 1 and October 1 and on the Business Day  following the last day of
such Dividend Period.

     "Dividend Period" means, with respect to each Series, the period commencing
on the Date of Original  Issue thereof and ending on the date specified for such
Series on the Date of Original Issue thereof and thereafter,  from and including
one Dividend  Payment Date for shares of such Series to but  excluding  the next
succeeding Dividend Payment Date for shares of such Series;  provided,  however,
that if any Dividend Period is also a Special Rate Period,  such term shall mean
the period commencing on the first day of such Special Rate Period and ending on
the last day of the last Dividend Period thereof.

     "Eligible Assets" means Moody's Eligible Assets.

     "Equity Assets" means warrants and equity  securities  issued by a borrower
or its affiliates as part of a package of  investments  or in connection  with a
restructuring of debt.

     "Existing  Holder"  means (a) a person who has signed a Master  Purchaser's
Letter and beneficially owns those Preferred Shares listed in that person's name
in the  records  of the  Auction  Agent  or (b) the  beneficial  owner  of those
Preferred  Shares which are listed under such person's  Broker-Dealer's  name in
the records of the Auction Agent, which Broker-Dealer shall have signed a Master
Purchaser's Letter.

     "Hold  Order"  has  the  meaning  set  forth  in  "Additional   Information
Concerning  the Auction for Preferred  Shares -- Orders By Existing  Holders and
Potential Holders."

     "Holder" means, with respect to Preferred Shares,  the registered holder of
shares of each Series as the same appears on the share  ledger or share  records
of the Trust.

                                      B-3

     "Investment  Company Security" means common shares of an investment company
registered under the Investment Company Act.

     "Loan"  means  any  assignment  of  or   participation  in  any  bank  loan
denominated  in U.S.  dollars  including  term loans,  the funded and  unfounded
portions  of  revolving  credit  lines  (provided  that the Trust shall place in
reserve an amount equal to any unfunded  portion of any  revolving  credit line)
and debtor-in possession financings; provided that such loan (a) is not extended
for the purpose of purchasing or carrying any margin stock and (b) is similar to
those typically made, syndicated, purchased or participated by a commercial bank
in the ordinary course of business.

     "Mandatory  Redemption  Date" has the meaning set forth in  "Description of
Preferred Shares -- Redemption."

     "Mandatory  Redemption  Price"  has the  meaning  set forth in set forth in
"Description of Preferred Shares -- Redemption."

     "Market  Value" means the Market Value Price or, if a Market Value Price is
not readily  available,  the Approved  Price of each Eligible  Asset held by the
Trust.

     "Market  Value  Price"  means the price of an  Eligible  Asset which is the
price  obtained  from an  Approved  Pricing  Service  or such  other  price used
pursuant to the Trust's valuation procedures adopted pursuant to the 1940 Act.

     "Maximum  Rate"  means,  on any  date  on  which  the  Applicable  Rate  is
determined, the applicable percentage of the "AA" Financial Composite Commercial
Paper Rate on the date of such  Auction  determined  as set forth below based on
the credit ratings assigned to the Preferred Shares by Moody's subject to upward
but not downward  adjustment in the  discretion  of the Board of Trustees  after
consultation with the  Broker-Dealers;  provided that immediately  following any
such increase the Trust would be in compliance  with the Preferred  Shares Basic
Maintenance Amount.

                   Moody's              Applicable
                Credit Rating           Percentage
                -------------           ----------
                aa3 or Above               125%
                a3 or a1                   160%
                baa3 to baa1               250%
                Below baa3                 275%

     "Moody's" means Moody's Investors Service, Inc. and its successors at law.

     "Moody's Advance Rate" has the meaning set forth in "Moody's  Guidelines --
Moody's Guidelines."

     "Moody's Asset  Category" has the meaning set forth in "Moody's  Guidelines
-- Moody's Guidelines."

     "Moody's Asset Category A" has the meaning set forth in "Moody's Guidelines
-- Moody's Guidelines."

     "Moody's Asset Category B" has the meaning set forth in "Moody's Guidelines
-- Moody's Guidelines."

     "Moody's Asset Category C" has the meaning set forth in "Moody's Guidelines
-- Moody's Guidelines."

     "Moody's Asset Category D" has the meaning set forth in "Moody's Guidelines
-- Moody's Guidelines."

     "Moody's Asset Category E" has the meaning set forth in "Moody's Guidelines
-- Moody's Guidelines."

                                      B-4

     "Moody's Eligible Assets" has the meaning set forth in "Moody's  Guidelines
-- Moody's Guidelines."

     "Moody's  General  Portfolio  Requirements"  has the  meaning  set forth in
"Moody's Guidelines -- Moody's Guidelines."

     "Moody's  Industry  Classification"  means, for the purposes of determining
Moody's Eligible Assets, each of the following industry classifications (or such
other  classifications  as Moody's may from time to time approve for application
to the Preferred Shares):

     1. Aerospace and Defense: Major Contractor,  Subsystems, Research, Aircraft
Manufacturing, Arms, Ammunition

     2.  Automobile:  Automobile  Equipment,   Auto-Manufacturing,   Auto  Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers

     3. Banking:  Bank Holding,  Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables

     4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors,
Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn
Refiners,  Dairy Products,  Meat Products,  Poultry Products,  Snacks,  Packaged
Foods,  Distributors,  Candy, Gum,  Seafood,  Frozen Food,  Cigarettes,  Cigars,
Leaf/Snuff, Vegetable Oil

     5. Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting,
Engineering,  Construction,  Hardware, Forest Products  (building-related only),
Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development,  REITs, Land
Development

     6. Chemicals, Plastics and Rubber: Chemicals (non-agriculture),  Industrial
Gases,  Sulphur,  Plastics,  Plastic  Products,  Abrasives,   Coatings,  Paints,
Varnish, Fabricating

     7. Containers, Packaging and Glass: Glass, Fiberglass,  Containers made of:
Glass, Metal, Paper, Plastic, Wood or Fiberglass

     8. Personal and Non-Durable Consumer Products  (Manufacturing Only): Soaps,
Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies

     9. Diversified/Conglomerate Manufacturing

     10. Diversified/Conglomerate Service

     11.   Diversified   Natural   Resources,   Precious  Metals  and  Minerals:
Fabricating, Distribution, Mining and Sales

     12. Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste
Disposal

     13.  Electronics:   Computer  Hardware,  Electric  Equipment,   Components,
Controllers,  Motors,  Household  Appliances,  Information Service Communicating
Systems, Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology

     14. Finance: Investment Brokerage, Leasing, Syndication, Securities

     15.  Farming  and  Agriculture:  Livestock,  Grains,  Produce,  Agriculture
Chemicals, Agricultural Equipment, Fertilizers

                                      B-5

     16. Grocery: Grocery Stores, Convenience Food Stores

     17. Healthcare,  Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research,  Health  Care  Centers,  Nursing  Homes,  HMOs,  Hospitals,   Hospital
Supplies, Medical Equipment

     18. Home and Office Furnishings, Housewares, and Durable Consumer Products:
Carpets, Floor Coverings, Furniture, Cooking, Ranges

     19. Hotels, Motels, Inns and Gaming

     20. Insurance: Life, Property and Casualty, Broker, Agent, Surety

     21. Leisure, Amusement, Entertainment: Boating, Bowling, Billiards, Musical
Instruments, Fishing, Photo Equipment, Records, Tapes, Sports, Outdoor Equipment
(Camping), Tourism, Resorts, Games, Toy Manufacturing

     22.   Machinery   (Non-Agriculture,    Non-Construction,   Non-Electronic):
Industrial, Machine Tools, Steam Generators

     23. Mining,  Steel,  Iron and  Non-Precious  Metals:  Coal,  Copper,  Lead,
Uranium,  Zinc,  Aluminum,  Stainless Steel,  Integrated  Steel, Ore Production,
Refractories,  Steel Mill Machinery, Mini-Mills,  Fabricating,  Distribution and
Sales

     24.  Oil and Gas:  Crude  Producer,  Retailer,  Well  Supply,  Service  and
Drilling

     25. Personal, Food and Miscellaneous

     26. Printing and Publishing:  Graphic Arts, Paper, Paper Products, Business
Forms, Magazines, Books, Periodicals, Newspapers, Textbooks

     27. Cargo Transport:  Rail, Shipping,  Railroads,  Rail-car Builders,  Ship
Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck
Manufacturing, Trailer Manufacturing, Air Cargo, Transport

     28. Retail Stores:  Apparel, Toy, Variety,  Drugs,  Department,  Mail Order
Catalog, Showroom

     29.  Telecommunications:  Local,  Long  Distance,  Independent,  Telephone,
Satellite, Equipment, Research, Cellular

     30. Textiles and Leather: Producer,  Synthetic Fiber, Apparel Manufacturer,
Leather Shoes

     31. Personal Transportation: Air, Bus, Rail, Car, Rental

     32. Utilities: Electric, Water, Hydro Power, Gas, Diversified

     33. Broadcasting and Entertainment:  Recording Industry,  Motion Exhibition
Theatres,  Motion  Picture  Production  and  Distribution,  Radio,  T.V.,  Cable
Broadcasting and Broadcasting Equipment

     "1940 Act  Preferred  Shares  Asset  Coverage"  means  asset  coverage,  as
determined in accordance with Section 18(h) of the Investment Company Act, of at
least 200% with respect to all outstanding  senior securities of the Trust which
are stock,  including  all  Outstanding  Preferred  Shares (or such other  asset
coverage as may in the future be  specified in or under the  Investment  Company
Act as the minimum  asset  coverage for senior  securities  which are stock of a
closed-end  investment  company as a condition  of  declaring  dividends  on its
common shares), determined on the basis of values calculated as of a time within
48 hours (not  including  Sundays or holidays)  next  preceding the time of such
determination.

                                      B-6

     "1940 Act  Preferred  Shares  Asset  Coverage  By-laws" has the meaning set
forth in "Description of Preferred Shares -- Asset Maintenance."

     "Investment  Company  Act" means the  Investment  Company  Act of 1940,  as
amended.

     "Non-Senior  Loan" means a Loan that is a hybrid loan, a subordinated  loan
or an unsecured loan other than a Senior Unsecured Loan.

     "Notice  of  Redemption"  has the  meaning  set  forth in  "Description  of
Preferred Shares -- Redemption."

     "Order" has the meaning set forth in "Additional Information Concerning the
Auction  for  Preferred  Shares --  Orders By  Existing  Holders  and  Potential
Holders."

     "Outstanding" means, as of any date, Preferred Shares theretofore issued by
the  Trust  except,  without  duplication,   (i)  Preferred  Shares  theretofore
canceled,  redeemed or  repurchased  by the Trust,  or  delivered to the Auction
Agent for  cancellation  or with  respect to which the Trust has given notice of
redemption and irrevocably  deposited with the Paying Agent  sufficient funds to
redeem such Preferred  Shares and (ii) any Preferred  Shares  represented by any
certificate in lieu of which a new  certificate  has been executed and delivered
by the Trust.  Notwithstanding the foregoing,  (A) for purposes of voting rights
(including the  determination  of the number of shares  required to constitute a
quorum),  any Preferred  Shares as to which the Trust or any Affiliate  shall be
the Existing  Holder shall be  disregarded  and not deemed  Outstanding;  (B) in
connection with any Auction,  any Preferred  Shares as to which the Trust or any
person  known to the  Auction  Agent to be an  Affiliate  shall be the  Existing
Holder shall be disregarded and not deemed Outstanding;  and (C) for purposes of
determining the Preferred Shares Basic Maintenance Amount, Preferred Shares held
by the Trust shall be disregarded and not deemed Outstanding, but shares held by
any Affiliate shall be deemed Outstanding.

     "Paying  Agent" means Bankers Trust Company unless and until another entity
appointed by a resolution of the Board of Trustees enters into an agreement with
the Trust to serve as paying  agent,  which  paying agent may be the same as the
Auction Agent.

     "Performing"  means  that no  default as to the  payment  of  principal  or
interest has occurred and is continuing.

     "Potential  Beneficial  Owner or Holder," means (1) any Existing Holder who
may be interested  in acquiring  additional  Preferred  Shares or (ii) any other
person who may be interested in acquiring  Preferred Shares and who has signed a
Master  Purchaser's  letter or whose shares will be listed  under such  person's
Broker-Dealer's  name on the  records of the Auction  Agent which  Broker-Dealer
shall have executed a Master Purchaser's letter.

     "Preferred  Shares" means the Class A and Class B Auction  Preferred Shares
of the Trust.

     "Preferred Shares Basic Maintenance  Amount" as of any Valuation Date means
the dollar amount equal to the sum of

     (i)  (A) the sum of the products  resulting from  multiplying the number of
          Outstanding  shares of each Series of Preferred Shares on such date by
          the Liquidation  Preference (and redemption premium, if any) per share
          of such Series;  (B) the aggregate  amount of dividends that will have
          accumulated at the Applicable Rate (whether or not earned or declared)
          to and including the first Dividend  Payment Date for each Outstanding
          Preferred  Share that follows such  Valuation Date (or to the 30th day
          after such  Valuation  Date,  if such 30th day occurs before the first

                                      B-7

          following  Dividend Payment Date); (C) the amount of anticipated Trust
          non-interest  expenses for the 90 days  subsequent  to such  Valuation
          Date;  (D) the  amount  of the  current  outstanding  balances  of any
          indebtedness  which is senior to the  Preferred  Shares plus  interest
          actually  accrued  together  with 30 days  additional  interest on the
          current outstanding balances calculated at the current rate multiplied
          by 1.93 and (E) any other current  liabilities  payable  during the 30
          days subsequent to such Valuation Date, including, without limitation,
          any indebtedness  service to the Preferred Shares and indebtedness due
          within  one year  and any  redemption  premium  due  with  respect  to
          Preferred  Shares for which a Notice of Redemption has been given,  as
          of such  Valuation  Date to the extent not  reflected in any of (i)(A)
          through (i)(D): less

     (ii) the sum of any cash  plus the value of any  Trust  assets  irrevocably
          deposited  by the Trust for the payment of any (i)(B)  through  (i)(E)
          (except that if the security matures prior to the relevant  redemption
          payment date and is either fully guaranteed by the U.S.  Government or
          is rated P1 by  Moody's  and  A+/A-1 by S&P,  it will be valued at its
          face value).

     "Preferred Shares Basic Maintenance  Amount Test" means a test which is met
if the  aggregate  Discounted  Values of the Moody's  Eligible  Assets  meets or
exceeds the Preferred Shares Basic Maintenance Amount.

     "Preferred Shares Basic Maintenance  Certificate" has the meaning set forth
in "Description of Preferred Shares -- Asset Maintenance."

     "Rate Period" means either a Standard Rate Period or a Special Rate Period.

     "Rating  Agency" means Moody's as long as such rating agency is then rating
the Preferred Shares.

     "Redemption  Date" has the meaning set forth in  "Description  of Preferred
Shares -- Dividends and Dividend Period."

     "Redemption Default" has the meaning set forth in "Description of Preferred
Shares -- Dividends and Dividend Period."

     "Redemption  Price" has the meaning set forth in  "Description of Preferred
Shares -- Dividends and Dividend Period."

     "Reference  Rate" means,  with respect to the  determination of the Default
Rate, the applicable "AA" Financial Composite Commercial Paper Rate.

     "Securities   Depository"  means  The  Depository  Trust  Company  and  its
successors and assigns or any successor  securities  depository  selected by the
Trust that  agrees to follow the  procedures  required  to be  followed  by such
securities depository in connection with the shares of each Series.

     "Sell  Order"  has  the  meaning  set  forth  in  "Additional   Information
Concerning  the  Auction  for  Preferred  Shares  --  Submission  of  Orders  by
Broker-Dealers to Auction Agents."

     "Senior Loan" means any secured Loan that is not  subordinated by its terms
to any other indebtedness of the borrower.

     "Senior  Loan  Participations"  means  participations  by  the  Trust  in a
lender's portion of a Senior Loan where the Trust has a contractual relationship
with such lender and not the borrower, and such lender is rated at least A-1/A-.

     "Series" means any of the series of Preferred Shares issued by the Trust.

                                      B-8

     "Short-Term   Money  Market   Instrument"  means  the  following  types  of
instruments  if, on the date of  purchase  or other  acquisition  thereof by the
Trust, the remaining term to maturity thereof is not in excess of 180 days :

     (i)  commercial paper rated A-1 if such commercial paper matures in 30 days
          or A-1+ if such commercial paper matures in over 30 days;

     (ii) demand or time deposits in, and banker's  acceptances and certificates
          of  deposit  of  (A)  a  depository   institution   or  trust  company
          incorporated  under the laws of the  United  States of  America or any
          state  thereof or the  District  of  Columbia  or (B) a United  States
          branch office or agency of a foreign depository  institution (provided
          that such  branch  office or agency is subject  to banking  regulation
          under the laws of the United States, any state thereof or the District
          of Columbia) ;

     (iii) overnight funds; and

     (iv) U.S. Government Securities.

     "Special Rate Period"  means a Dividend  Period that is not a Standard Rate
Period.

     "Specific  Redemption  Provisions"  means, with respect to any Special Rate
Period of more  than one year,  either,  or any  combination  of (i) a period (a
"Non-Call  Period")  determined by the Board of Trustees after consultation with
the Broker-Dealers,  during which the shares subject to such Special Rate Period
are not  subject to  redemption  at the option of the Trust and (ii) a period (a
"Premium Call  Period"),  consisting of a number of whole years as determined by
the Board of Trustees after  consultation with the  Broker-Dealers,  during each
year of which the shares subject to such Special Rate Period shall be redeemable
at the Trust's option at a price per share equal to the  Liquidation  Value plus
accumulated  but unpaid  dividends  (whether or not earned or  declared)  plus a
premium  expressed as a percentage or  percentages of the  Liquidation  Value or
expressed as a formula using  specified  variables as determined by the Board of
Trustees after consultation with the Broker-Dealers.

     "Standard  Rate Period"  means the period from and  including  one Dividend
Payment  Date for shares of such  Series to but  excluding  the next  succeeding
Dividend Payment Date for shares of such Series,  and generally means a Dividend
Period of 7 days.

     "Structured  Notes" means structured notes with rates of return  determined
by reference to the total rate of return on one or more Senior Loans  referenced
in such notes, which are issued by a collateralized  loan special purpose entity
or similar vehicle.

     "Submission  Deadline"  means 1:00 P.M., New York City time, on any Auction
Date or such other time on any Auction Date by which Broker-Dealers are required
to submit  Orders to the Auction  Agent as specified  by the Auction  Agent from
time to time.

     "Submitted Bid Order" has the meaning set forth in "Additional  Information
Concerning  the  Auction  for  Preferred  Shares  --  Submission  of  Orders  by
Broker-Dealers to Auction Agents."

     "Submitted Hold Order" has the meaning set forth in "Additional Information
Concerning  the  Auction  for  Preferred  Shares  --  Submission  of  Orders  by
Broker-Dealers to Auction Agents."

     "Submitted  Order" has the  meaning  set forth in  "Additional  Information
Concerning  the  Auction  for  Preferred  Shares  --  Submission  of  Orders  by
Broker-Dealers to Auction Agents."

                                      B-9

     "Submitted Sell Order" has the meaning set forth in "Additional Information
Concerning  the  Auction  for  Preferred  Shares  --  Submission  of  Orders  by
Broker-Dealers to Auction Agents."

     "Treasury  Index  Rate" means the average  yield to maturity  for  actively
traded  marketable U.S.  Treasury fixed interest rate securities having the same
number of 30-day  periods to maturity as the length of the  applicable  Dividend
Period,  determined, to the extent necessary, by linear interpolation based upon
the yield for such securities  having the next shorter and next longer number of
30-day periods to maturity  treating all Dividend  Periods with a length greater
than the longest  maturity for such  securities as having a length equal to such
longest  maturity,  in all cases  based  upon data set forth in the most  recent
weekly  statistical  release  published by the Board of Governors of the Federal
Reserve System (currently in H.15 (519)); provided,  however, if the most recent
such  statistical  release  shall not have  been  published  during  the 15 days
preceding the date of  computation,  the foregoing  computations  shall be based
upon the  average of  comparable  data as quoted to the Trust by at least  three
recognized dealers in U.S. Government securities selected by the Trust.

     "U.S. Government  Securities" means direct obligations of the United States
or by its agencies or instrumentalities  that are entitled to the full faith and
credit of the United States and that,  other than United States  Treasury Bills,
provide for the  periodic  payment of interest and the full payment of principal
at maturity or call for redemption.

     "Valuation Date" means the last Business Day of each week.

     "Winning Bid Rate" means the lowest rate specified in the Submitted  Orders
which, if (A) each Submitted  Hold/Sell Order from Existing  Holders  specifying
such lowest rate and all other Submitted  Hold/Sell Orders from Existing Holders
specifying  lower  rates were  accepted  and (B) each  Submitted  Buy Order from
Potential Holders specifying such lowest rate and all other Submitted Buy Orders
from Potential Holders specifying lower rates were accepted, would result in the
Existing  Holders  described in clause (A) above continuing to hold an aggregate
number of Preferred  Shares which,  when added to the number of Preferred Shares
to be purchased by the Potential  Holders  described in clause (B) above and the
number of Preferred  Shares subject to Submitted Hold Orders,  would be equal to
the number of Preferred Shares.

                                      B-10

                                   APPENDIX C

                         DESCRIPTION OF CORPORATE BONDS

The rating indicated herein are believed to be the most recent ratings available
at the date of this SAI for the securities  listed.  Ratings are generally given
to securities at the time of issuance.  While the rating  agencies may from time
to time revise such  ratings,  they  undertake no  obligation  to do so, and the
ratings  indicated do not necessarily  represent ratings which would be given to
these securities on the date of the Trust's fiscal year end.

Bonds which are unrated expose the investor to risks with respect to capacity to
pay interest or repay  principal  which are similar to the risks of  lower-rated
speculative bonds. The Trust is dependent on the investment  adviser's judgment,
analysis and experience in the evaluation of such bonds.

Investors  should  note  that the  assignment  of a rating to a bond by a rating
agency may not reflect the effect of recent developments on the issuer's ability
to make interest and principal payments.

Moody's Investors Service, Inc.

Aaa: Bonds which are rated Aaa are judged to be of the best quality.  They carry
the smallest  degree of investment  risk and are generally  referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change,  such changes as can be  visualized  are most  unlikely to impair the
fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all  standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.  They are rated lower than the best bonds  because  margins of protection
may not be as large as in Aaa securities or  fluctuation of protective  elements
may be of greater  amplitude or there may be other  elements  present which make
the long term risk appear somewhat larger than the Aaa securities.

A: Bonds which are rated A possess many favorable investment  attributes and are
to be considered as upper-medium-grade  obligations.  Factors giving security to
principal  and interest  are  considered  adequate,  but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium grade obligations (i.e.,
they are neither highly  protected nor poorly  secured).  Interest  payments and
principal  security  appear  adequate  for the present  but  certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

B: Bonds  which are rated B  generally  lack  characteristics  of the  desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over any long period of time may be small.

Caa:  Bonds  which are rated Caa are of poor  standing.  Such  issues  may be in
default or there may be present  elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent  obligations  which are  speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest  rated  class of bonds,  and issues so
rated can be regarded as having  extremely  poor prospects of ever attaining any
real investment standing.

                                      C-1

Absence of Rating:  Where no rating has been assigned or where a rating has been
suspended or  withdrawn,  it may be for reasons  unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

     1.   An application for rating was not received or accepted.

     2.   The issue or issuer belongs to a group of securities or companies that
          are not rated as a matter of policy.

     3.   There is a lack of essential data pertaining to the issue or issuer.

     4.   The  issue  was  privately  placed,  in which  case the  rating is not
          published in Moody's publications.

Suspension or withdrawal may occur if new and material  circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable  up-to-date  data to permit a  judgment  to be  formed;  if a bond is
called for redemption; or for other reasons.

Note:  Moody's applies numerical  modifiers,  1, 2, and 3 in each generic rating
classification  from Aa through B. The  modifier 1 indicates  that the  security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a  mid-range  ranking and the  modifier 3 indicates  that the issue ranks in the
lower end of its generic rating category.

                                      C-2

                         EATON VANCE SENIOR INCOME TRUST

                       STATEMENT OF ADDITIONAL INFORMATION
                              ______________, 2001


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INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
The Eaton Vance Building
255 State Street
Boston, MA 021090

CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116

TRANSFER AGENT
PFPC, Inc.
P.O. Box 9653
Providence, RI  02940-9653
(800) 262-1122

INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116

                                                                          SITSAI